The acquisition of multidisciplinary infrastructure and environmental consultancy Halcrow by U.S. giant CH2M HILL, completed in November 2011 (Environment Analyst 27-Sep-11), paved the way to the integration of two employee-owned firms with highly complementary businesses stretching across the globe, in a deal described by CH2M HILL chief executive Lee McIntire as a “game changer.”

Environment Analyst spoke to CH2M HILL regional director for environmental services for Europe, Middle East, North Africa, and India, Johan De Fraye, and Halcrow’s former environment practice director, Richard Ashby-Crane, who now holds the position of CH2M HILL business development director for environmental services in the UK, to better understand the implications of the £230 million purchase on both sides and the progress of integrating Halcrow into its significantly larger parent company.
 
Structure
Halcrow/CH2M HILL’s environmental consulting and wider environmental services are undertaken from within the environmental services business group (ESBG), one of eight business groups (BGs) within the parent group. Other BGs include water, nuclear, government facilities & infrastructure, industrial and advanced technology, power, and transportation. As one of the older business groups, ESBG represents the “vanguard” of the company, according to De Fraye. This is due to the fact that not only is it instrumental in securing business with new clients, it is also at the forefront of CH2M HILL’s expansion into new geographies.

The company’s operations are also segmented geographically into seven regions, namely: North America, Europe, Asia, Australia/New Zealand, Latin America and Middle East, North Africa, and India. As such, De Fraye describes CH2M HILL as a “matrix structure,” whereby individual BGs determine their own strategies and select the clients and sectors best suited to their own activities. While at a regional level, the regions can implement the strategy in accordance with local issues and market drivers on the ground and look for cross-business group synergies and collaboration.

International Expansion 
Founded in Oregon, USA, in 1946, CH2M HILL has traditionally been centered on the North American market. But, as with many of its closest rivals, it has increasingly sought to promote its activities beyond the domestic market. To date, its efforts have been focused on Europe, Middle East, Asia Pacific, Australia, and India, with the acquisition of Halcrow representing a significant step towards this goal. According to its recently released financial results for 2012, CH2M HILL now derives 31 percent of its $6.2 billion group turnover from outside of the USA, up from 25 percent in 2011.
 
The integration of Halcrow has had a far-reaching impact on its parent company’s make-up, bringing together and combining their respective competences, teams, and client lists. Across the different BGs, the proportion of Halcrow to CH2M HILL staff varies considerably. Within ESBG Europe, however, the Halcrow to CH2M HILL staff ratio is fairly equally balanced, combining 150 former Halcrow staff based predominantly in the UK, Poland, and Romania, with 150 CH2M HILL staff, located primarily in the UK, Belgium, France, Germany, Georgia, and Italy.

Underlining the complementary nature of the businesses, De Fraye points to the fact that the only real overlap in ESBG Europe between the two companies came from their respective teams in London, which have now been fully amalgamated.

But in terms of the performance of each of the two businesses in 2012, the results are contrasting. Ashby-Crane reveals that after a difficult period (Environment Analyst 10-Oct-11) preliminary figures suggest that revenue for the Halcrow side of the business group in 2012 is on a par with that of 2011, indicating a return to stability. Crucially, the integration of Halcrow with CH2M HILL will provide the confidence to be able to grow again during 2013, he underlines. In contrast, De Fraye points to much stronger growth for the CH2M HILL side of the ESBG partnership over the past year, hinting at a 20 percent increase in both top and bottom lines, and a 17 percent rise in terms of staff numbers across the European business.

Branding Issue
As yet, a question mark remains over the future of the Halcrow brand. Currently, CH2M HILL and Halcrow are operating as two distinct brands. In some areas, where CH2M HILL dominates and the Halcrow brand is less established, the consolidation of the brands is likely to be quicker, hints Ashby-Crane. But he also stresses that these deliberations are limited solely to a branding level; and that in terms of integration at a structural level, both companies have been fully integrated since 1 January 2013.
 
With 300 staff working for the European ESBG arm, the region is part of an international contingent representing 13 percent of ESBG’s total global workforce of over 2,300. ESBG Europe is established in nine European countries, including the UK, Belgium, France, Germany, Italy, Romania, Poland, Georgia, and Armenia.

Synergies
Across the region, the Romanian oil and gas sector has always been a key market for Halcrow. For CH2M HILL, historic work for the U.S. Department of Defense, U.S. Air Force, and Army has made Germany and Italy core markets, in addition to its more recent activities in the petrochemical sector in Northern Europe. In respect of their combined activities across the European region, the UK currently represents 10-15 percent of ESBG revenue, according to De Fraye.
 
The combination of client sectors serviced respectively by each of the two firms is also highly advantageous, with Halcrow’s traditional leaning towards the public sector and CH2M HILL’s focus on the private sector, giving each partner access to a much wider audience. Combining both firms’ environmental activities, De Fraye estimates that public sector clients now account for approximately 60 percent with private sector work taking the remaining 40 percent.

The synergies extend to the merged group’s technical capabilities, with CH2M HILL offering a strong contaminated land and turnkey site remediation offering, while Halcrow’s traditional strengths lie on the consulting side in environmental impact assessment (EIA), siting, and licensing, in addition to work in the ecology and natural resources sectors. As such, the combined entities are able to offer a broad portfolio of services, leading De Fraye to comment: “Now we have a cradle-to-cradle approach to projects, and can cover the whole cycle from the asset development stage including permitting and EIAs right up to liability management and clean up.”

De Fraye highlights a study looking at remedial alternatives on behalf of Sellafield Ltd. at its nuclear site in Warrington, the objective of which is to assess the different technologies currently available. He explains that this particular project is being solely undertaken by ESBG Europe, enabling the new group to stretch its wings and really prove what the combined CH2M HILL/Halcrow environmental services team is capable of.
 
Ashby-Crane is confident that ESBG Europe will see improved results for 2013 and beyond, driven in particular by activities in Poland and Romania.

Meanwhile, De Fraye refers to “bullish double-digit growth” across the region, not least with the combined teams exploiting the “positive energy” created by the integration of Halcrow. By the end of 2013, all Halcrow results will be amalgamated within CH2M HILL.
 
Eleven Percent Growth for Group in 2012
CH2M HILL posted a 10.9 percent rise in gross revenue to reach $6.2 billion for 2012, including a full year’s contribution from Halcrow. Having reorganized its reporting structure in January last year, the company results are now presented as two major segments: energy, water, and facilities (EWF), representing 56 percent and $3.5 billion of 2012 revenue; and government, environment, and infrastructure (GEI), which houses CH2M HILL’s environmental services business group amongst others, and comprises the remaining 44 percent of total revenue, equivalent to $2.7 billion.

The EWF segment saw revenue rise 24.8 percent year-on-year, largely thanks to the contribution made by Halcrow operations and improved volumes in water-related projects in North America, UK, and Middle East. In contrast, the GEI segment saw a 3.1 percent decline over the same period due to lower volumes in its nuclear markets, decreased funding levels for large Department of Energy projects, and reduced work in the Middle East. The decline was offset, however, by improved demand for environmental services from private sector clients both in the U.S. and internationally.

CH2M HILL currently employs 30,000 employees worldwide operating from more than 170 area offices.