AECOM sells Earth Tech’s water jewels

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Tyco’s sale of Earth Tech was completed at the end of July. New owner AECOM has a very definite idea of which assets it wants to keep.

The completion of AECOM’s acquisition of Earth Tech on 25 July was accompanied by news that it had reached definitive agreements to offload a significant proportion of Earth Tech’s international water assets. AECOM moved to buy Earth Tech chiefly for its consulting and engineering business, and announced back in February that it would be looking to sell the majority of the operating side of the business.

The move is not without irony, given that AECOM originally stood for Architecture, Engineering, Consulting, Operations and Maintenance, but it ties in with the company’s current strategic plan. “We’re a pretty pure consulting engineering firm,” AECOM’s Glenn Robson explained to GWI. “While we do pursue DBFO-type opportunities, having a portfolio of those assets is not at the forefront of our strategy. The more capital-intensive assets that are just in the ownership stage – rather than the engineering stage – are of less interest to us.”

Tyco had always wanted to sell Earth Tech as a single package, and when it became clear that this would be difficult, AECOM and Suez came up with a solution that satisfied all parties. The companies teamed up around a year ago to look at ways of structuring a back-to-back transaction, whereby Tyco would sell Earth Tech to AECOM as a single unit, and AECOM would simultaneously hive off those activities which did not fit its business model.

That is effectively what has happened, and although some non-core water assets remain on the table, Robson told GWI that the respective sale processes are expected to be completed “in the next several months”.

The value of the deals which have been struck so far is USD 175 million, which is more than one third of the USD 510 million purchase price paid by AECOM to acquire Earth Tech. The main elements are the sale of Earth Tech’s North American contract operations business (NACO) to United Water, the sale of industrial water systems supplier WPT (2007 revenues USD 40 million) to Degrémont, and the sale of Earth Tech Mexican Holdings S.A. to Mitsui and Toyo (see chart below). Also included in the USD 175 million total are the sale of Earth Tech’s last remaining North American water BOT in Beverly Hills (the plant was sold back to the municipality earlier this year), and the impending sale of Earth Tech’s interests in a trio of Chinese BOTs to Sino-French.

The NACO business, which generated USD 50 million of revenues in 2007, should provide a good fit for United Water, which also bought Aquarion’s US contract ops business last year. “The primary geographic focus is the North-East part of the US, and the Midwest, and when you add that to the AOS acquisition, it really puts us in a very strong position,” United Water’s Patrick Cairo explained to GWI. The vast majority of NACO’s 130 contracts are in the US, and most concern municipal water and wastewater operations, including a handful of long-term DBOs in the operating phase.

The Mexican portfolio, meanwhile, had revenues of USD 40 million last year, and includes a batch of industrial and municipal DBOs and DBFOs. “Mitsui already had partial ownership interest in certain of the projects in Mexico, and I think one of the things that was attractive to them was being able to get full control of projects,” AECOM’s Robson told us. Mitsui and Toyo intend to position Earth Tech Mexico as a “proactive water business developer” going forward, and there are certainly plenty of BOT opportunities coming up (see story p27).

The remaining Earth Tech assets up for sale are understood to include a selection of international water and wastewater BOTs (including the Dalriada plant in Northern Ireland), which are expected to bring in a further USD 50-60 million for AECOM.