Jacobs' Spin-Off and Merger: New Era for Critical Mission Solutions and Cyber & Intelligence

Strategic Rationale Behind Spin-Off and Merger

The strategic rationale behind Jacobs' spin-off and merger with Amentum is to realize synergies and benefits, create a leading global engineering and technology solutions provider, and drive growth through significant transformations and exceptional leadership.

"The event will showcase Amentum's solutions and capabilities, including the synergies and benefits expected to be realized through the previously announced transaction relating to the spin-off of Jacobs's (NYSE:J) Critical Mission Solutions and portions of its Divergent Solutions business, including the Cyber & Intelligence business, and merger with Amentum." --- (J, press release, 2024/07/22)

"During his tenure, he played a pivotal role in navigating significant transformations and driving growth across our organization and most recently, has demonstrated exceptional leadership in overseeing the ongoing separation of our Critical Mission Solutions and Cyber Intelligence businesses as well as its planned strategic merger with Amentum." --- (J, earning call, 2024/Q2)

"Filed under Amazon Holdco Inc., the Form 10 describes the spin-off and merger with Amentum Parent Holdings LLC ("Amentum"), to create a leading, publicly traded global engineering and technology solutions provider." --- (J, press release, 2024/07/16)

Expected Benefits for Critical Mission Solutions and Cyber & Intelligence

The spin-off and merger are expected to enhance strategic focus, operational efficiency, and growth for Jacobs' Critical Mission Solutions and Cyber & Intelligence sectors. Increased backlog, revenue, and operating profit, along with targeted investments in key markets, underscore the anticipated benefits and strengthened capabilities in addressing evolving challenges.

"He will provide transitional support to Venk over the coming weeks and continue in his role as Special Advisor to the CEO to drive a successful conclusion to the separation of our Critical Mission Solutions and Cyber & Intelligence business. "I am excited to join the talented team at Jacobs and contribute to the company's continued success," said Nathamuni." --- (J, press release, 2024/05/16)

"Critical Mission Solutions (CMS) Jacobs' Critical Mission Solutions line of business provides a full spectrum of solutions for clients to address evolving challenges like information and cyber warfare, digital transformation and modernization, national security and defense, space exploration, digital asset management and the green energy transition." --- (J, sec filing, 2024/Q2)

"Page 45 The following table summarizes our backlog at March 29, 2024 and March 31, 2023 (in millions): March 29, 2024 March 31, 2023 Critical Mission Solutions $ 8,453 $ 8,136 People & Places Solutions 17,929 17,563 Divergent Solutions 2,682 2,956 PA Consulting 344 319 Total $ 29,408 $ 28,974 The increase in backlog in Critical Mission Solutions from March 31, 2023 was primarily driven by growth and increased funding levels in the United Kingdom and U.S. nuclear remediation markets along with growth in the U.K. defense sector that offset slower growth in the U.S. Defense sector." --- (J, sec filing, 2024/Q2)

"Brings further strategic growth and operational efficiency business intelligence DALLAS, July 18, 2024 /PRNewswire/ -- Jacobs (NYSE:J) announced today the election of Mary Jackson to its Board of Directors, effective upon the closing of the previously announced separation of Jacobs' Critical Mission Solutions and portions of its Divergent Solutions business, or, if earlier, January 15, 2025." --- (J, press release, 2024/07/18)

"Page 42 Critical Mission Solutions Three Months Ended Six Months Ended March 29, 2024 March 31, 2023 March 29, 2024 March 31, 2023 Revenue $ 1,229,226 $ 1,191,056 $ 2,357,829 $ 2,266,231 Operating Profit $ 103,649 $ 93,943 $ 197,056 $ 176,163 Critical Mission Solutions segment revenues for the three and six months ended March 29, 2024 were $1.23 billion and $2.36 billion respectively, an increase of $38.2 million and $91.6 million, or 3.2% and 4.0%, from reported amounts of $1.19 billion and $2.27 billion for the corresponding periods last year." --- (J, sec filing, 2024/Q2)

Financial Impact of the Spin-Off and Merger

Jacobs' spin-off and merger are expected to follow a well-planned integration process, similar to L3Harris, with significant costs and adherence to merger agreements. Financial impacts include substantial wind-down and setup costs, as seen in GE's spin-off, and inherent risks and uncertainties that could affect financial outcomes.

"We've kind of branded ourselves as the trusted disruptor. But I'd say a majority of what happened went on plan on schedule or better from the integration cost of over $600,000,000 Everything per the merger agreement with the terms and conditions, the Board, succession planning, moving headquarters, everything went exactly how we laid it out." --- (LHX, conference, 2024/05/30)

"The financial information as of March 31, 2024, should be read in conjunction with the Consolidated Financial Statements for the year ended December 31, 2023, contained in our 2023 Annual Report on Form 10-K. See Note 3 Acquisitions and Divestitures of Notes to Consolidated Financial Statements for a discussion of acquisition and divestiture activity during the three months ended March 31, 2024." --- (HON, sec filing, 2024/Q1)

"Post the GE Vernova spin-off, we expect to incur roughly $300 million for the remaining wind-down of GE corporate office and close to $250 million to set up standalone infrastructure for GE Aerospace." --- (GE, earning call, 2024/Q1)

"Strategic transactions, including mergers, acquisitions and divestitures, involve significant risks and uncertainties that could adversely affect our business, financial condition, results of operations, cash flows and equity." --- (LHX, sec filing, 2024/Q1)

Impact on Market Positioning

Jacobs is strategically positioned to capitalize on growth opportunities across core market sectors, particularly in the U.K. and U.S. markets. Their expertise in renewables and other sectors enhances their market positioning, enabling them to deliver high margins and meet financial forecasts, setting the stage for incremental growth in 2025.

"In summary, we remain well-positioned to capitalize on the growth opportunities across our core market sectors." --- (J, earning call, 2024/Q2)

"But they're very well positioned, especially in the U.K. market. And so we're feeling good about their ability to be delivering that 20% plus margin in the back half of the year." --- (J, earning call, 2024/Q2)

"I'd say in the US, it's been not just a market on its own, but it's also been an enabling market, our expertise around renewables and then taking that energy expertise in taking it to areas such as data centers and the EV ecosystem with regards to transportation." --- (J, earning call, 2024/Q2)

"And as a result, we are well-positioned to deliver on our forecast, maintaining 100% reported as well as adjusted free cash flow conversion for the full year." --- (J, earning call, 2024/Q2)

"But I would tell you, the team is doing an amazing job in filling in and positioning for exiting 2024, putting itself back in a place to be seeing incremental growth in 2025." --- (J, earning call, 2024/Q2)

Influence on Competitive Landscape

Jacobs' spin-off and merger will reshape the competitive landscape by leveraging core capabilities to align with market requirements, similar to Northrop Grumman's selective approach. However, like Lockheed Martin, Jacobs must navigate competitive risks and transition challenges to maintain long-term value and competitiveness.

"Just like any other set of opportunities, we make the decisions based on core capabilities and how they align with the requirements and whether we are well suited to execute the program, the competitive landscape, whether we're well suited to win the program and the financial structure of the program and whether it's attractive to get a good return on investment." --- (NOC, conference, 2024/05/30)

"including its sustainability and management pack, lack clarity about how Lockheed is planning to meet transition challenges and create long term value. As a result, Lockheed remains exposed to competitive risk its peers and customers, ambitious decarbonization targets, transition risk through increased carbon pricing mechanisms, and physical risk from supply chain disruptions." --- (LMT, event transcript, 2024/05/02)

"Can you comment on the competitive environment when you look at yourselves, your traditional peers and then some of these new entrants, and we saw the annual situation." --- (NOC, conference, 2024/05/30)

"We see a whole variety of opportunities that we can pursue, so we're simply selective on which ones we're best positioned to win, where we think that we can competitively." --- (NOC, earning call, 2024/Q1)

"We just focus on staying competitive and we've been able to do that across all those market segments over a long period of time and I don't think it's any different as we sit here today." --- (NOC, conference, 2024/05/30)

Operational Changes and Integration Plans

Jacobs is forming an integrated delivery organization to manage a $3.8 billion capital program, reflecting significant operational changes. The spin-off allows for strategic prioritization, enhancing operational performance and margin trends, similar to improvements seen in other industry players like L3Harris and Boeing.

"All organizations on the specialist framework will form an integrated delivery organization with United Utilities to deliver its planned circa $3.8 billion (£3 billion) capital program from 2025 to 2030, with an option to extend for an additional five years, from 2030 to 2035." --- (J, press release, 2024/06/11)

"Backlog remains at over $32 billion and supports margin expansion opportunity as we move forward given operational improvements and recent bidding discipline." --- (LHX, earning call, 2024/Q1)

"On the 25% of the portfolio, primarily comprised of fighter and satellite programs, operational performance further stabilized in the quarter, which drove improved margin trends." --- (BA, earning call, 2024/Q1)

"So again, overall an improvement for the year. We've still got some classified programs, fixed price that we are continuing to work through." --- (RTX, earning call, 2024/Q1)

"When we spun, it gave us a chance to reset our strategy. That's the one really cool thing about getting spun is you immediately get to prioritize your strategy versus just being an operating unit of a big company." --- (HII, conference, 2024/05/29)

Future Growth Prospects Post Spin-Off and Merger

Jacobs' future growth prospects post spin-off and merger are promising, with visibility into post-spin performance and a focus on value creation. The company is expected to leverage a broad portfolio, new opportunities, and a strategic capital deployment to drive growth, similar to Northrop Grumman's approach in the defense sector.

"You've given good visibility into the post spin. I think I look at it as I was quickly doing the math, you're trending at about 2% on a trailing 12-month sales, so maybe on a percentage basis trailing 12-month post spin, where are you looking to get? I think it's been elevated post your PA Consulting acquisition in 2021?" --- (J, earning call, 2024/Q2)

"So, in summary, with a broad portfolio of well-supported programs, continued new domestic and international opportunities, a relentless focus on performance, and a capital deployment strategy designed to create value for customers and shareholders alike, Northrop Grumman is well-positioned for the future." --- (NOC, earning call, 2024/Q1)

"The trending down to the $50 million, you're not expecting that line item to come down until post separation though, right?" --- (J, earning call, 2024/Q2)

"Kathy Warden: We had talked about Sentinel growth coming flattening out for a few years and then returning to growth as we moved into the production phase later in the decade that still holds true." --- (NOC, earning call, 2024/Q1)

"In other words, there might have been some more growth and it's a cost plus development contract, but there might have been some more interim growth pre-two thousand and thirty before than there is now that, that stretched out." --- (NOC, conference, 2024/05/30)