DEALTALK-Engineering firms find it hard to bridge M&A chasm
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* Valuing backlog of rivals makes M&A tricky
* Size matters in contract bids, partnerships
* URS, Jacobs on lookout for small buyouts to add skills
SAN FRANCISCO, May 18 (Reuters) - Engineers, who are often proud of their calm, logical approach to big challenges, can find themselves flummoxed when it comes to stitching their companies together, despite the benefits that additional scale and skills bring.
A wave of government-backed infrastructure investment is coming, but valuations in the U.S. engineering and construction sector are down amid uncertainty about private-sector projects with credit so tight, meaning a case for mergers can be made.
Executives in the industry say the main hurdle in merging their companies is the very nature of what makes them valuable -- their people, and the planned projects in the backlog.
"Typically the companies that are the cheapest, or look the most acquirable, are the ones who have the most screwed-up backlog and are afraid to let you in there," said Will Gabrielski, analyst at Broadpoint AmTech.
"There's no such thing as a hostile takeover in this space because you need the seller to be willing to open up their books and really let you get in there and scrub that backlog," he added. "And that doesn't happen that often."
Privately held Bechtel, the sector's U.S. leader in terms of revenue, expects some consolidation among rivals, if only smaller buyouts to plug holes in the services they offer.
"I'm sure that some of the public competition are looking at opportunities to round out their portfolio," Peter Dawson, Bechtel's chief financial officer, told Reuters in a recent interview. "They were overvalued and now they're undervalued."
As for Bechtel itself, the San Francisco-based company won't rule out targeted acquisitions of technologies, though anything beyond that just seems too hazardous.
"We know how hard it is to estimate projects that we bid and run ourselves," Dawson said. "So valuing other people's backlog would always be a challenge."
Rival Fluor Corp (FLR.N) can see "bargains" out there, but must weigh that against the advantage of financial flexibility, said Stephen Dobbs, senior group president of the Irving, Texas-based company's industrial and infrastructure group.
"The difficulty before in our market was that we thought potential targets were overpriced," Dobbs told the Reuters Infrastructure Summit this month. "Now we're going to think about ... whether it's a good deal to keep the $2 billion in the bank, or whether it's time to go buy some bargains." Continued...
