ABM Industries Incorporated (ABM - Analyst Report) has entered into an agreement to acquire Air Serv Corporation for approximately $158 million in cash. The transaction is expected to be slightly accretive to ABM’s earnings in fiscal 2013 and to contribute significantly in the future. The transaction, pursuant to customary closing conditions, is expected to close next month.
Air Serv is a leading provider of integrated facility management services for the world's leading airlines and freight companies at airports across the United States and United Kingdom. It generates annual revenues of approximately $300 million and employs around 12,000 employees globally and provides a variety of janitorial, passenger, security services and transportation services. Air Serv is the global leader in wheelchair, baggage handling and skycap services.
The combined entity will significantly expand ABM's capabilities in meeting the end-to-end needs of the airlines and airport authorities and is expected to generate over $650 million in annual revenues. This acquisition will augment ABM’s aviation capabilities and position the company as the industry leader in this space.
In the recently reported third-quarter fiscal 2012, ABM posted adjusted earnings of 37 cents per share, falling short of the Zacks Consensus Estimate of 42 cents as well as the year-ago quarter earnings of 51 cents per share.
Total revenue remained flat year over year at $1.08 billion, missing the Zacks Consensus Estimate of $1.09 billion. Contract cancellations of government-related businesses in the Facility Solutions segment negatively impacted the results.
The acquisition will enhance ABM’s international footprint and Air Serv’s U.K operations will serve as a base for expanding ABM’s in other services as well. However, the dearth of government contracts as well as weak global economic condition will weigh on the margins going forward. Moreover, as the company’s Facility Solution segment depends heavily on government contracts, any further cancellation of these contracts would have a negative impact on its revenues.
ABM retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on the stock.