October 17, 2011 / 9:43 AM / 7 years ago

Engineer Arcadis to buy EC Harris, cuts 2011 outlook

AMSTERDAM (Reuters) - Dutch engineering firm Arcadis (ARDS.AS) said it would acquire London-based buildings and infrastructure consultant EC Harris to strengthen its position in project management and expand its presence in the Middle East and Asia.

The company, which also cut its outlook for 2011 earnings on Monday, has been looking for opportunities away from the struggling Benelux market, looking to tap strong growth in Asia and South America.

“Although an acquisition in the UK was not on top of our expectations list, EC Harris adds decent size and an attractive position in the Middle East and Asia,” SNS Securities analysts wrote in a note.

Arcadis, which competes with Dutch peer Grontmij GRONc.AS and U.S. rival Tetra Tech (TTEK.O), said it would issue 3 million shares to EC Harris partners and pay an undisclosed cash amount from existing credit facilities.

SNS Securities analysts estimated the acquisition price to be between 108 million and 144 million euros (94 million pound and 126 million pound).

Arcadis shares were down 1.1 percent to 14.1 euros at 0830 GMT (9:30 a.m. BST), underperforming Amsterdam’s midcap index, which was up 1.3 percent.

Arcadis Chief Executive Harrie Noy said the deal would make his company a top-five firm globally in project management and would allow it to win new business higher up the construction value chain.

“One of the advantages of having a position in the UK is that many multinationals have a strong base there and it is very difficult to imagine that you can serve them across the globe without having a strong base in the UK,” Noy said.

EC Harris, which made 290 million euros in gross revenue last year, expects to make 44 percent of its sales this year in the property market and 57 percent in Britain. Arcadis made 19 percent of its 2 billion euros gross revenue last year in the buildings market.

EC Harris, which boasts Royal Dutch Shell (RDSa.L), HSBC (HSBA.L) and Heathrow Airport owner BAA (FER.MC) among its clients, has undertaken projects globally such as the 55,000-seat Singapore Sports Hub and the Doha Festival City shopping mall.

The deal, which Arcadis said would be accretive to earnings per share as of 2012, is expected to receive approval by EC Harris partners at the end of October and close in November.

OUTLOOK CUT

In a trading update accompanying the announcement of the deal, Arcadis warned that 2011 net income from operations was expected to come in at the same level as 2010. It had previously guided for growth of between 0 and 5 percent.

The company blamed weak market conditions in Poland as well as higher financing charges and tax rates than initially envisaged for the revision in the outlook.

“We have seen in Poland that major road projects have been put on hold. We had good reasons to expect these would be restarted and that’s not happening, which means we have overcapacity we have to reduce,” Noy said.

Arcadis has diversified away from the cyclical construction industry into water management, environmental treatment services and projects ranging from the design of green cities in China to “bioterrorism” detection in the United States.

But the company is still exposed to an intensely competitive home market in the Netherlands, as well as in other European countries where governments are slashing public works spending, such as Poland and the Czech Republic.

Its takeover of U.S. environmental consultancy Malcolm Pirnie in 2009 strengthened its position in that market, and the company had said it was on the lookout for acquisition opportunities that would help it tap new markets.

Noy said Arcadis still had firepower for acquisitions in Asia following the EC Harris takeover.

Editing by David Holmes and Hans-Juergen Peters

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