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Jacobs to spin-off CMS and Cyber & Intelligence Unit, eyes margin expansion

  • Jacobs to spin-off CMS and Cyber & Intelligence Unit, eyes margin expansion

About the entity

Jacobs is one of the world’s largest and most diverse providers of technical, professional, and construction services.


Jacobs has entered into a definitive agreement to spin-off and combine its Critical Mission Solutions and Cyber & Intelligence government services businesses with Amentum, a leading global engineering and technology solutions provider, to create a new, publicly-traded player in the government services sector. In May, Jacobs first announced the intent to separate its CMS business to create two separate companies, each positioned for greater success. Today's transaction announcement is the outcome of a comprehensive review of all alternatives, including inbound inquiries resulting from that initial announcement.

The combination creates a robust, leading government technology solutions business with ~$13 billion annual revenue, consisting of Jacobs' Critical Mission Solutions, the Cyber & Intelligence portions of its Divergent Solutions (DVS) business, and Amentum. Jacobs' Cyber & Intelligence Solutions, which share significant strategic and operational synergies with CMS, generated $807 million in revenue (approximately 85% of DVS's revenues) in fiscal year 2023. Jacobs will retain its innovative, next-generation data solutions and digital technologies business, which is part of its DVS segment and core to delivering digitally enabled critical infrastructure solutions to clients.

"By separating CMS and associated Cyber & Intelligence Solutions, Jacobs will streamline our business portfolio and transform into a more focused, higher-margin company more closely aligned with key global mega trends," said Jacobs CEO Bob Pragada. "We believe this transaction is in the best interests of the company and our stakeholders, gaining the benefits of a tax efficient transaction, plus even greater value with significant cash proceeds and future realization of synergies. I am confident the CMS and Cyber & Intelligence Solutions teams are poised for continued success in their new chapter as part of a more focused, independent public company that will be a leading player in the critical mission government services space – with both breadth and depth of capabilities across a more diversified portfolio."

"Uniting our great organizations – Amentum, CMS, and Cyber & Intelligence Solutions – creates a leading provider of systems integration and technology solutions with the talent, scope, scale and footprint to deliver excellence and a wider range of solutions for our clients," commented Amentum CEO John Heller. "Our combined company will deliver extensive expertise in the government's highest priority areas of energy, space exploration, intelligence and analytics, and digital modernization. We look forward to the union of our strong teams and a bright future ahead."

Focused Critical Infrastructure and Sustainability Leader

The transaction marks an important milestone in Jacobs' journey to become a more focused and higher value company. Post-separation, Jacobs will continue to be a premier technology-enabled solutions provider focused on addressing the world's most complex critical infrastructure and sustainability challenges with leading positions in the attractive water and environment, energy transition, transportation and advanced manufacturing sectors. Excluding the businesses being separated, Jacobs generated approximately $10.9 billion in revenue in fiscal year 2023.

Governance and Management

Upon completion of the deal, Jacobs Executive Chair Steve Demetriou will become Executive Chair of the combined company. John Heller, current CEO of Amentum, will serve as CEO of the combined company and sit on the combined company's board, and Dr. Steve Arnette, EVP and President of CMS will serve as the COO.

"Over the last eight years, our focus has been to drive a cultural and business transformation to position Jacobs as a technology-enabled solutions provider and one of the world's most innovative companies," said Steve Demetriou. "I look forward to working alongside John, Steve and the board to help bring that same dedicated focus to successfully launch this new public company and deliver significant value-added opportunities for clients, shareholders and employees."

The board of directors of the combined company will initially be composed of an equal number of directors appointed by Jacobs and Amentum. Members of the combined company's senior management team will be drawn from both companies and will be announced at a later date as integration planning progresses.

Strategic Rationale of the Combination

Creates a leading, pure play government technology solutions prime: ~$13 billion combined revenue, with more than 80% from prime contracts serving the full program life cycle for government clients, and a combined talent base of more than 53,000 skilled employees – including more than 27,000 cleared employees.

Stable revenue base with attractive, diversified portfolio mix: Combines stable base of large government contracts with strong capabilities in growing client priority areas. A large majority of future EBITDA of the combined company is expected to come from higher growth, higher margin intelligence, cyber, energy, digital engineering, and science and technology sectors, with a strong foundation of long-term and large-scale DoD contracts.

Highly complementary strengths: Jacobs' contributed businesses bring world-class engineering and science capabilities, with unique expertise in sectors such as space, cyber & intelligence, and energy. Amentum brings expertise in engineering solutions, complex program management and solutions integration to modernize clients' most important missions.

Shared vision and aligned values: Each organization brings an intense focus on the mission and delivery of the highest quality service for their clients. The organizations share common values, including a commitment to safety, inclusion and diversity, and creation of enhanced opportunities for the combined employee base.

High visibility cost synergies: Management has identified approximately $50-70 million of estimated net cost synergies. Both organizations have track records of effective synergy realization and will work to target additional synergies during integration.

Compelling financial profile: Approximately $50 billion in combined backlog (3.7x combined revenue), ~$13 billion of combined revenue, and more than $1.1 billion projected 2024 combined adjusted EBITDA3, including estimated net cost synergies, representing approximately 8% projected adjusted EBITDA margin for the combined company. Significant growth opportunities through both on-contract growth and new contract wins across the combined portfolio.

Secure balance sheet with strong FCF and attractive deleveraging pathway: Leverage ratio of the combined company is targeted to be approximately 3.8x at close, inclusive of expected run-rate net cost synergies, with plan to reach less than 3x leverage ratio within 24 months of close. Capital expenditures for the combined company approximate 0.3% of revenue.

Transaction Details

The transaction is being structured as a Reverse Morris Trust transaction intended to be tax-free to Jacobs' shareholders for U.S. federal tax purposes, consistent with the tax-free nature of the previously announced plan to separate CMS by means of a spin-off. Key details of the transaction include:

Ownership: Jacobs and its shareholders will own 58.5%-63% of the combined company's common shares upon consummation of the transaction, consisting of 51% Jacobs' shareholders ownership and Jacobs retaining 7.5-12%. The exact amount of the retained stake will be determined based on achievement of certain fiscal year 2024 operating profit targets. Funds managed by American Securities and Lindsay Goldberg, the current owners of Amentum, will own no less than 37% of the combined company's common shares upon consummation of the transaction.

Cash proceeds: Jacobs is expected to receive cash proceeds of $1 billion at close, subject to customary adjustments. Jacobs is committed to maintaining its investment grade credit profile following the separation and expects to use the cash received at close to repay debt. Jacobs also expects to realize additional value after closing through the disposition of its retained equity stake in the combined company within 12 months.

Closing: Closing of the transaction will be subject to various customary closing conditions including regulatory approvals, receipt of a private letter ruling from the Internal Revenue Service, opinions from tax advisors and the effectiveness of a registration statement with the U.S. Securities and Exchange Commission. Amentum has received all the necessary shareholder approvals to complete the transaction; no vote of Jacobs' shareholders is required for the transaction.

Timing: The transaction is expected to close in the second half of fiscal year 2024, a time frame consistent with the previously announced spin-off.

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