AECOM spinning off its government services business
This move follows a list of actions AECOM has taken to improve shareholder value, including cost cutting, the anticipated exit of hard-bid at-risk construction, the exit of non-core oil & gas and fixed-price combined-cycle gas power plant construction, the planned exit from more than 30 countries and the decision to no longer pursue international at-risk construction opportunities.
AECOM has announced that it is planning to spin-off of its management services segment into a standalone government services company. This move follows a list of actions AECOM has taken to improve shareholder value, including the already-executed $225 million general and administrative expenses (G&A) reduction, the anticipated exit of hard-bid at-risk construction, the exit of non-core oil & gas and fixed-price combined-cycle gas power plant construction, the planned exit from more than 30 countries and the decision to no longer pursue international at-risk construction opportunities.
“Today’s announcement marks a transformational step forward for AECOM and continues our pursuit of maximizing shareholder value by best positioning our industry-leading businesses for long-term success,” said Michael S. Burke, AECOM’s chairman and CEO. “As part of our continuing efforts to best position each business for long-term strategic and financial success, and in recognition of our current valuation that we believe does not fully reflect the value inherent across our enterprise, we identified an opportunity to unlock value through a separation of our two businesses.”
As standalone entities, both AECOM and the government services business are expected to benefit from having separate boards of directors, and company-specific incentive programs and performance indicators to align employee incentive compensation opportunities, among other business-related advantages.
The new public company resulting from the spin-off will leverage its existing intelligence, cybersecurity, IT, nuclear remediation and O&M expertise to continue to deliver services primarily to national government clients, including the U.S. Departments of Defense and Energy and various intelligence and other agencies.
In fiscal 2018, the management services segment of AECOM generated revenue of $3.7 billion, operating income of $200 million and adjusted operating income1 of $239 million. In addition, the segment delivered 18% adjusted operating income growth in the first half of fiscal 2019.
As an independent entity, the government services business will invest to expand its capabilities and to pursue its more than $30 billion pipeline of opportunities.
The business has more than 25,000 employees, more than 10,000 of whom have security clearance.
John Vollmer, group president of the management services segment, and the existing management team are expected to continue to lead the standalone government services company. Additionally, Randy Wotring, AECOM’s COO, is expected to serve as chairman of the Board of Directors of the standalone government services business.
The transaction is currently expected to be completed in the second half of fiscal 2020.