Balfour Beatty plc, the U.K.-based global construction giant, announced on Sept. 17 it would acquire U.S. engineering stalwart Parsons Brinckerhoff for $626 million. The deal, which officials say would keep the 13,000-employee PB intact as a wholly owned subsidiary, is still subject to approval by shareholders of both firms. The acquisition, to be financed mainly by Balfour Beatty selling its own shares to existing investors, is to be completed late next month. About 4,700 PB shareholders will vote on the proposed purchase on Oct. 21.
 

Photo: Massachusetts Turnpike Authority
PB Signature Projects include Boston’s $15-billion Central Artery/Tunnel.

Photo: Trevor Rayton, VDOT
The $1-billion reconstruction of the Woodrow Wilson Bridge across the Potomac River Washington. D.C., is another PB showcase.

The deal, which follows six months of negotiations, fills business gaps for both firms. It offers New York City-based PB access to the deeper pockets and construction capability of Balfour Beatty, which has revenue of nearly $15 billion, 41,000 employees and is “incredibly healthy,” says one observer.

The new parent would gain a nearly 125-year-old legend in engineering and professional services, with particular ties to numerous signature transportation projects in the U.S. and globally. PB reports $2.3 billion in 2008 revenue and profits of $74 million and a reach of more than 100 worldwide offices. It ranked No. 11 on ENR’s list of Top 500 Design Firms. Balfour Beatty CEO Ian Tyler told analysts the deal would create about $8 million in cost savings, although those synergies “are not the main driver.”

Tyler says he is “absolutely clear that we need to maintain the brand, the values, the culture and the processes of Parsons Brinckerhoff as a complete entity.” He notes the intent to develop “an organization with genuine global reach across the whole spectrum of infrastructure investment.” According to Tyler, the acquisition “puts Balfour Beatty in an excellent position to take advantage of increased U.S. infrastructure spending and is a key step in becoming a global integrated leader in infrastructure services.”

For PB, the deal would culminate a long search for a strategic partner. Its search has been impacted over the last two years by financial market gyrations and the cultural incompatibility of prospective buyers.

Parsons Brinckerhoff CEO Keith J. Hawksworth says the Balfour Beatty deal “creates an organization with world-class capabilities. There is a clear fit.” PB Chairman James L. Lammie says the firm will retain its name and organizational structure. While Hawksworth is British, observers speculate how long the 30-year PB veteran, now in his late 60s, will remain in his current role.

Balfour Beatty already appears to be planning some changes, particularly in PB’s U.K.-based business. “The U.K. has not been a star performer for PB in recent years...and we see plenty of scope for...improvement,” says Tyler. Improving margins is “one of the most tangible areas of improvement,” he adds.

Balfour Beatty Managing Director Andrew Wolstenholme is charged with overseeing PB’s integration into the group. The former director of capital projects for BAA plc, the London-based British airport operator, Wolstenholme joined the contractor a year ago. Parsons Brinckerhoff will retain its “distinct structure” under the current “strong management,” says Tyler.

Officials say the proposed deal will not reopen financial issues related to PB’s portion of a 2008 settlement with federal and state authorities over liability in a 2006 fatal tunnel collapse at Boston’s Central Artery/Tunnel. A joint venture of PB and Bechtel Group was the $15-billion project’s project consultant.

Under that pact, Bechtel agreed to pay $357.1 million, with PB agreeing to pay $50 million (ENR 2/8/08 p. 10). With $26 million paid in 2006 and $33 million in 2007, the matter is “fully settled,” says Duncan Magrath, Balfour Beatty’ finance director. Officials also play down issues related to the impact of U.K. ownership on PB projects with U.S. national security connections, including design of the U.S. Strategic Petroleum Reserve.

The sale to Balfour Beatty was largely motivated by PB’s growth needs, says Stuart Glenn, the firm’s international director. “We looked at how some competitors had outstripped us in the last few years,” he says, adding that PB’s broad-based employee ownership structure also impeded growth. Among the firm’s 4,700 shareholders, none holds more than a 2% stake, according to Tyler.

While one observer speculates that the purchase will change competitive dynamics for both firms, Tyler says, “We are not creating...a tied arrangement.”

The transaction is the latest and largest of Balfour Beatty’s purchases of U.S.-based companies. It bought the Dallas-based non-residential construction unit of Centex Group in 2007 and previously acquired builder Heery Construction, Atlanta. Balfour Beatty earlier this year announced U.S. revenue now makes up 30% of its total.

Balfour Beatty, which is publicly traded on the London exchange, last month announced its profits for the first six months of 2009 rose 30% and earnings per share went up 6%. “The first half of 2009 was a further period of growth for the group,” Tyler says. “We anticipate making good progress.”