Jacob’s Critical Mission Solutions Spin-off Notes

Jacob’s Critical Mission Solutions Spin-off Notes

February 15, 2024 Update

Commentary From February 2024 Conference Call:

Turning to Slide 4. I want to provide a brief update on a few key milestones related to the spin-off and merger of our Critical Mission Solutions in Cyber and Intelligence businesses with momentum. We continue to progress towards closing of the transaction in the second half of fiscal year 2024, consistent with our previous expectations. Together with momentum, we are making progress on preparing our Form 10 and private letter rooming request in keeping with the established time line of the transaction.

Additionally, we are progressing antitrust filings and regulatory approvals. Upon the public filing of the Form 10, we aim to offer more comprehensive information and look forward to introducing the combined leadership team to our investors and analysts later this spring.

…

Moving to Critical Mission Solutions. Our Q1 revenue increased 5% year-over-year with backlog up 9%. Continuing a consistent trend of high single-digit growth over multiple quarters. We also continue to find avenues through operational improvement with CMS operating margins rising by 63 basis points year-over-year.

December 13, 2023 Update

On November 21, 2023, Jacobs (J) released an update on its planned spin off its Critical Mission Solutions, which was first announced back in May. The spinoff will now also include their Cyber & Intelligence government services businesses, and upon completion, the spinCo will merge with Amentum, a global engineering and technology solutions provider. As of now, the transaction is expected to be completed in the second half of fiscal year 2024.

The Spin-off (30% of revenue) and RemainCo (70% of revenue) basically provide the same services: consulting, data analysis to design and manage complex projects. However, they serve different end markets. The Spin-off is completely focused on Government services. It provides nice cash flow and is steady but is less profitable, slower growing and not ESG friendly. Thus, the idea is that the RemainCo should trade at a higher multiple.

The new company created from the merger of Amentum and the spin-off is set to have $13BN in combined revenues in 2024, with an adjusted EBITDA of ~$1.1BN, and a backlog of $50BN.  As a part of the deal, Jacobs is set to receive ~$1BN in cash proceeds.

October 16, 2023 Update

Reuters: US private equity firms challenge Amentum in race for Jacobs unit
– Veritas and Platinum Equity plan to make all-cash offers, while Amentum’s private equity owners Lindsay Goldberg and American Securities intend to offer Amentum shares as part of their bid

August 13, 2023 Update

Some key points from the August 2023 Quarterly conference call:

June 7, 2023 Update

From a Berstein conference in May 2023:

May 29, 2023 Update

On May 9, 2023, Jacobs (J) announced that it’s spinning off its Critical Mission Solutions business. The spin-off will be a leading pure-play provider of government services. The tax free spin-off is expected to be completed in Q2 2024.

The Spin-off (30% of revenue) and RemainCo (70% of revenue) basically provide the same services: consulting, data analysis to design and manage complex projects. However, they serve different end markets. The Spin-off is completely focused on Government services. It provides nice cash flow and is steady but is less profitable, slower growing and not ESG friendly. Thus, the idea is that the RemainCo should trade at a higher multiple.

Raymond James believes a 10x EV/EBITDA multiple for the Spin-off and 16.0x EV/EBITDA multiple for RemainCo are appropriate which would imply a $167/share price target (current price is $115). I will dig in to try to determine whether this transaction will unlock value.