Bouygues to buy Swiss utility Alpiq's engineering services business

* Deal valued at 850 million Swiss francs

* Expected to close in H2 2018

PARIS, March 26 (Reuters) - French construction group Bouygues said on Monday it was buying the engineering services business of Swiss utility Alpiq for 850 million Swiss francs ($897.19 million) in cash to expand into European energy services.

Under the deal, Bouygues Construction will pay 700 million Swiss francs and its Colas Rail unit will pay the remaining 150 million Swiss francs, the statement said.

“Through the combination of our skills and the complementary nature of our businesses, this acquisition establishes Bouygues Construction as a benchmark player in energy and services in Europe,” Philippe Bonnave, Chairman and Chief Executive of Bouygues Construction said in a statement.

The Swiss utility, which has a market value of around 2 billion Swiss francs, said last year that it was looking to find a buyer for the businesses as part of a drive to reverse chronic losses from its dam operations.

Bouygues is paying 12 times average earnings before interest and tax (EBIT) over the last three years, which is in line with recent sector deals such as the acquisition of German firm SAG by Spie in December 2016 at multiples of 11 times EBIT, a source close to Bouygues said.

Herve le Bouc, chief executive of Colas, said that the deal will enable Colas Rail to develop in the Swiss and Italian markets and strengthen its presence in Central Europe and Britain.

The deal, expected to close in the second half of this year, is subject to approval by European and Swiss competition authorities.

Alpiq Engineering Services employs around 7,650 people and had 2017 sales of almost 1.7 billion Swiss francs, mostly in Germany, Switzerland and Italy.

Alpiq reported on Monday its fifth loss in seven years as low European power prices continue to weigh.

By 0735 GMT shares in Bouygues gained 0.10 percent at 39.80 euros while Alpiq was up 5.75 percent in Switzerland. (Reporting by Dominique Vidalon and Gilles Guillaume Editing by Bate Felix and Louise Heavens)