Swedish consultancy Sweco has reached a conditional agreement to buy all the shares of Netherlands- headquartered Grontmij – the combined company will have approximately 14,500 employees with an annual total turnover of approximately €1.7billion (£1.2billion).

The offer has been unanimously recommended by the Executive Board and the Supervisory Board of Grontmij and supported by major shareholders of Grontmij and the two largest shareholders of Sweco.

A joint statement which described the combined company as a “near-perfect” geographic, operational and cultural fit said the deal would create Europe’s leading engineering consultancy firm.

Commenting on the deal, Tomas Carlsson, CEO of Sweco said:

“Combining Sweco and Grontmij will create great value for all parties involved. Sweco has a solid track record of continuous operational improvements. In terms of growth, Sweco has consistently shown its ability to successfully grow through mergers. Now that our latest large acquisition, from 2013, has been very successfully integrated, we are ready to take the next step on the European market. Sweco and Grontmij are an ideal combination, since we share the same expertise and commitment to our customers. Together with Grontmij, we aim to become a recognised industry leader in Europe. Not just in sales – but more importantly as the first choice for customers, employees and other stakeholders.”

The new organisation  will seek further value creation through operational improvements – including cost synergies and building on the joint company’s resources to further accelerate the improvement of Grontmij’s operational performance. Estimated annual synergies and operational improvements of €27 million, of which 90% is expected to be realised in the first four years after settlement.

The combined company will gain strong positions in several attractive Northern European markets with potential for further merger-driven growth, the statement said. The strategy will be to develop the joint company’s position in Grontmij’s current home markets, both through organic growth and acquisitions.

Michiel Jaski, CEO of Grontmij said:

“Grontmij has made significant progress since 2012 with its ‘Back on Track’ strategy. We have successfully stabilised and refocused the company, and have now reached a strategic crossroad. Looking at the future of Grontmij and the trends in our industry, we are convinced that merging with Sweco is in the best interest of all our stakeholders.”

Jan van der Zouw, Chairman of the Supervisory Board of Grontmij added:

“The Supervisory Board has thoroughly discussed and reviewed Grontmij’s strategic options over the past twelve months. The proposal to team up with Sweco has been considered carefully. Following Grontmij’s divestment of the remaining French activities, we are convinced that the best way forward for Grontmij and all its stakeholders is to join forces with Sweco. The employees and management of Grontmij have done a great job in improving the financial and operational performance. Going forward, greater resources are needed to fully realise the potential in Grontmij’s organisation. “

Over twelve months ago Grontmij started an extensive strategic review to evaluate all strategic options through a structured process led by the Executive Board in close consultation with the Supervisory Board. The review initially focused on the question which option would best serve the interest of all stakeholders of Grontmij and would maximise longer term value creation potential. An acquisition by a strong partner was, after due and careful consideration by the Executive Board and the Supervisory Board, considered the best option for Grontmij and its stakeholders. After discussions with selected parties, Sweco was deemed the most attractive partner and proposed an offer that was accepted as a basis for further discussions

Sweco and Grontmij intend to integrate and align their respective businesses to fully benefit from the European reach, scale and resources of their combined businesses. The combined company will continue to have a decentralised business model with strong local operational and financial responsibility.

The combined company will focus on a multidisciplinary approach in key markets and intends to invest in growth opportunities in Grontmij's and Sweco's core markets. The corporate headquarters of the combined company will be in Stockholm, Sweden.

Grontmij and Sweco may each terminate the merger protocol in the event that an offer is made by a bona fide third party and which exceeds the Offer Price by 9%. In this event, Sweco would be given the opportunity to match the offer. As part of the agreement, Grontmij has entered into customary undertakings not to solicit third party offers.