Good day, and welcome to Jacobs and PA Consulting, a powerful partnership conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I will now like to turn the call over to Jonathan Doros. Please go ahead.
Thank you for joining us today for a special webcast presentation regarding Jacobs' strategic partnership with PA Consulting. I'm joined on the call today by Steve Demetriou, our Chair and CEO, Bob Pragada, President and Chief Operating Officer, and Kevin Berryman, President and Chief Financial Officer. Before we begin, I will refer you to slide two for specific legal and financial commentary, as well as our forward-looking statement and other disclaimers. With that, I'll now turn the call over to Steve, our Chair and CEO.
Thank you, Jon, and hello everyone. I'm excited to announce another significant milestone on our journey to become a company like no other. Today we announce that Jacobs and PA Consulting are forming a strategic partnership to capture the next wave of the digital revolution by combining both companies' next-generation science and technology expertise with deep domain knowledge across multiple sectors. Before we review this powerful partnership, it's important to recap how today's announcement is consistent with the strategic vision and journey we outlined to our shareholder community over the past several years. Back in 2015, we began by reshaping Jacobs' senior management, which started with Kevin, Bob, and I joining the company, followed by several key strategic promotions and external hires. This leadership team conducted a comprehensive review of our business, analyzing our cost structure, our current offerings, and potential market adjacencies.
Together with our board of directors, in 2016, we set in place a new strategic vision for Jacobs that leveraged the strong core values of the company while refocusing to execute against long-term secular growth opportunities. In addition, we restructured the company into global lines of business to further drive accountability and a deeper customer intimacy, and to ensure success in executing this strategy, we ignited our culture through inspiration and inclusion. Pivotal to achieving our potential was establishing the right business portfolio and significantly changing our mindset to provide high-value solutions to our customers, not just billable hours. A key and well-timed catalyst for our transformation was the bold decision to divest our energy, chemicals, and resources business. Equally important was the acquisition of global environmental and infrastructure provider CH2M, as well as a series of bolt-on acquisitions that strengthen our capabilities in cyber, analytics, and national security solutions.
Most recently, we furthered our journey with our global rebranding centered around our promise: Challenging Today, Reinventing Tomorrow, and driving a dynamic culture of inclusion, inspiration, and innovation. We looked into the future and our vision for a company like no other. Our new Focus 2023 initiative provides the ability to improve efficiency in our foundational businesses to enable us to invest in becoming a premier high-end solutions provider. Our dynamic culture, robust portfolio of technology-enabled solutions, and strong global client relationships position us for double-digit growth. To further accelerate this growth, our journey includes selectively deploying capital toward compelling investments that drive shareholder value.
Turning to slide five, which you may recognize from our 2019 investor day, during which we specifically outlined digital consulting as a critical focus to drive the next phase of our strategy, as it offers both strong long-term secular growth and high profit margins. Both organically and through targeted niche M&A, we have grown our digital consulting offerings, however, not at the scale needed to capture the sheer size and growth of this $100 billion opportunity. So over the last two years, we've engaged and evaluated numerous large-scale digital investment opportunities, and from the beginning, PA Consulting stood out as our clear priority, driven by a strong cultural alignment through their superior technical and digital consulting capabilities.
We've been engaged in discussions with PA for nearly two years, gaining both a deep appreciation of their business and an understanding of the mega trends that are driving significant demand opportunities for innovation-driven consulting, as shown on the next slide, slide six. Globally, the world is experiencing multiple converging mega trends, creating the next wave of the digital revolution across all sectors. This next digital wave is driven by 5G compute power combined with advances such as in robotics, autonomous technology, machine learning automation, and geospatial technology, all of which will unlock amazing opportunities to solve many of the world's most complex challenges and result in the disruption of traditional business models. All of this points to the opportunity for PA Consulting as an exciting partner and powerful fit for Jacobs. Turning to slide seven, let me provide more detail on this powerful partnership.
We plan to acquire a 65% share in PA Consulting for $1.8 billion, which places PA at a total enterprise value of $2.4 billion. Kevin will provide additional financial details on the structure of our partnership in his remarks. PA is a strategic consulting firm with deep domain and exceptional digital expertise, solving critical challenges for customers. Given Jacobs and PA's complementary expertise and deep domain knowledge in the fast-growing markets I just outlined, together we are in a unique position to capture these opportunities. Core to this partnership is driving global revenue synergies with an initial focus in four key growth sectors of health and life sciences, public services, consumer and manufacturing, and defense and security. Overall, we believe this combination unlocks an additional $100 billion in addressable market opportunity for Jacobs, as we are now squarely positioned to win in the digital consulting sector.
From a financial standpoint, we believe the partnership will drive compelling value for our shareholders. PA has demonstrated strong double-digit annual profit growth with adjusted EBITDA margins north of 20%. We expect in fiscal 2022 an adjusted EPS accretion in the range of $0.52-$0.57 and an internal rate of return of over 15%. Now I'll turn the call over to Bob Pragada to provide additional detail on PA.
Thank you, Steve. Now turning to slide nine, PA Consulting's purpose: Bringing Ingenuity to Life, guides them as they support their clients, people, and communities to build a positive human future in a technology-driven world. They are an innovation-led consultancy operating globally from offices across the U.K., U.S., Europe, and the Nordics. At the heart of their business are their people: a diverse group of strategists, innovators, designers, consultants, digital experts, scientists, technologists, engineers, as well as developers, all working to deliver enduring and tangible results to clients. PA is not a traditional consulting firm. Their clients recognize that they are different, different in what they do and how they do it. PA has a strong and differentiated competitive market position. PA addresses the sweet spot across a number of converging client needs.
Rapidly evolving landscapes and the need to adapt at a faster pace than ever before are driving the demand for an integrated, innovation-driven consultancy provider. Clients' needs are no longer limited to a single area of expertise and often transcend traditional consulting boundaries and approaches. PA has delivered robust revenue and EBITDA growth over the last five years through increased focus on innovation-led and multi-capability services. Moving to slide 10, PA brings together unrivaled sector insight with a comprehensive toolkit of technical offerings. Their capabilities are centered around assisting clients in innovating and transforming their business in the wake of changing customer needs and behaviors, technological disruption, growing environmental and social consciousness, and other business challenges. They bring to market a differentiated proposition, providing the ability to turn strategy into working reality, integrating multiple capabilities to deliver end-to-end solutions.
By taking the time to understand each challenge and opportunity, they provide innovative and pragmatic solutions. Our partnership with PA will initially focus on high-growth sectors, including healthcare and life sciences, public services, consumer manufacturing, and defense and security. This partnership broadens our existing digital consulting portfolio in terms of diversity and scale in cybersecurity, Internet of Things, predictive analytics, and automated design, all of which are crucial for the future we want to build together. Moving to slide 11, which shows the operating model. The partnership respects and preserves PA's heritage and independence under PA Consulting CEO Ken Toombs's leadership, while creating superior value for Jacobs shareholders and significant opportunities for both companies' clients and employees through collaboration and co-creation of innovative solutions.
This partnership will further elevate PA to a global player at scale, accelerating their growth plan through access to Jacobs' client base and global platform, particularly in the U.S. PA will continue as a standalone entity and independently managed business with active collaboration between leadership teams. Moving to slide 12, from its inception in 1943, PA has worked with a wide range of clients, from startups with a promising idea to change the world to some of the most important global companies and organizations. Through a cutting-edge global innovation and technology center and innovation hubs, PA specialists tackle challenges across a range of disciplines, from high-end engineering to new product design to business transformation and strategy launch, helping on every step of the innovation journey, taking clients further, faster.
PA has seven attractive industry sectors with a focus on developing innovation capabilities while still maintaining broad transformational skill sets, allowing them to address the highest growth market segment. As Steve discussed earlier, mega trends and industry disruptors are affecting the world. PA is in the middle of solving these challenges. We're excited about the power of what we can accomplish together. So now let me share with you the ways PA is bringing ingenuity to life. Moving to slide 13, improving people's lives takes more than just cutting-edge technology. It takes a diverse team of experts who know how to unite multiple disciplines, zero in on a problem, and apply the technology to deliver life-changing results.
With the coronavirus pandemic escalating and the U.K. fast running out of life-saving ventilators, the government asked PA to lead one of the largest mobilizations of innovation, science, and engineering since the Second World War. PA drew up requirements and specifications for new ventilator designs and sourced millions of parts from across the globe during the greatest period of global supply chain disruption seen in our lifetimes. They put the ventilators through clinical trials and then got them approved by the medical regulator and distributed to hospitals across the country where demand levels changed by the hour. And they trained thousands of medical professionals on their use. The effort was a resounding success, and against all odds, everyone in the U.K. who needed a ventilator got one. Cell and gene therapies represent a significant breakthrough in the treatment of patients suffering from cancer and other rare disease.
PA is working with Ori Biotech, a London and Philadelphia-based innovator in cell and gene therapy manufacturing, to enable the production of these therapies at commercial scale for market-relevant costs. PA has a deep expertise in medical device development, and one great example is their work with Pharmaxis to design and develop an inhaler that made it easier for people suffering with cystic fibrosis to use inhalers, and it's technologies like this designed for one use that PA then takes and looks to apply in other ailments, such as tuberculosis, to enhance quality of life for those in need. Moving to slide 14, sustainability is one of those defining issues of our time. Business leaders need practical solutions and new technology to make a tangible difference to the challenges impacting our world.
Working with PulPac, a Swedish startup, PA developed a revolutionary low-cost approach to sustainable packaging using cellulose pulp that can replace single-use plastic at a lower cost. The PulPac method makes it possible to dry mold paper fibers into almost any shape or appearance in less than a second. Working with PA, one startup, Stuffstr, has developed a database solution that collects unwanted apparel and accessories from consumers in any condition and feeds it into either a second-hand clothing market or into materials recycling streams, a circular business model solution. Many of you will know Ørsted as one of the most innovative companies in the energy field, aiming to increase their green energy production to 99% by 2025.
PA has worked with Ørsted to fundamentally transform the organization, changing the culture, building capacities, and strengthening process in a transformation recently recognized by Harvard Business Review as one of the top 20 business transformations of the last decade. Moving to slide 15, protecting the world. It's a big statement, but as technologies develop, threats proliferate, and commercial interests are at play, keeping people safe as a mission has never been more important. The U.K. has big ambitions for commercial space travel, but needed a regulator to ensure market participants protect public safety and security, safeguard the environment, and meet U.N. treaty obligations. That's where PA came in, helping to craft a regulatory strategy, design the operating model for the organization, and a stakeholder engagement strategy to encourage innovation and U.K. investment.
The future threats created by today's technologies may still be hard to imagine, but PA stepped in to help the UK Ministry of Defence to visualize the organization's future thinking with a set of inspirational innovation tools. They created tools like virtual reality games to immerse decision-makers in future worlds, futurology questionnaires that illuminate expert opinion on possible impacts, and exercises to bring different scenarios to life, all to make sure MoD's defense strategy is always a step ahead of the latest threats. The harm from online child sexual exploitation and abuse is growing as internet use spreads across the globe and crimes become more sophisticated. PA has been key to establishing the WeProtect Global Alliance, an independent international institution that collaborates with international governments, law enforcement agencies, the technology industry, and civil society organizations to tackle the threat facing our children online.
Moving to slide 16, smart infrastructure is better for people, for business, and for the planet. PA is working on some of the most exciting infrastructure projects that are changing the way we live and work. With San Diego Gas and Electric Company, PA's utility reliability experts co-developed a proprietary machine learning-based product called iPredict, which predicts asset failures so the utility can address them before they become costly issues. Together with Virgin Hyperloop One, PA is creating the first major new mode of transportation in more than a century, devising the technology blueprint for the new transportation system, which features speeds two to three times faster than high-speed rail and an on-demand experience that can reduce a 300-kilometer commute to under 20 minutes.
PA's worked as a part of consortium High-BIAS to develop a breakthrough proof of concept and a commercialization model for a portable quantum sensing device that has the potential to fundamentally strengthen global navigation by eliminating dependence on GPS and ensuring zero drift, meaning that it can locate and navigate vehicles with pinpoint accuracy. Through these examples, you can see that our partnership with PA provides a platform to build significant business and high-value innovation, technical and digital consulting solutions in response to the secular trend. PA's digital consulting and innovation capabilities combine seamlessly with Jacobs' domain expertise to broaden clients' offerings. This high-impact partnership provides access to unparalleled technical, digital, and strategic consulting expertise across a customer's full project lifecycle. Now I'll turn the call over to Kevin to review the financial details of the partnership. Thank you, Bob.
Turning to slide 17, Jacobs has always emphasized the importance of taking a disciplined approach to deploying our shareholders' capital, the criteria of achieving risk-adjusted returns that are in excess of share purchases and dividends. Our process involves deep analysis of factors such as our target's cultural alignment and market growth, competitive advantage, customer advocacy, and operational performance. Today's partnership with PA is both a strategic fit and is compelling from a return on capital and shareholder value creation. Let me turn to slide 18 to discuss a summary of the transaction. Please note that my comments today will focus on U.S. dollar values. We are making a $1.8 billion investment in PA in the form of preferred and common equity, as well as providing PA with debt financing. This investment is comprised of a $995 million equity investment and $845 million of debt financing.
From a reporting standpoint, we will be consolidating PA financials in accordance with GAAP. The earnings related to the PA shareholders' minority interest will be adjusted and non-controlling interest. As a result, our EPS and adjusted EBITDA metrics will reflect our proportion of ownership in PA. Cash flow from operations and free cash flow will represent the cash generation from the entire PA entity, as the minority interest component is reflected in cash flow activities from financing. Turning to valuation, Jacobs' investment indicates a total enterprise value for PA of $2.4 billion, which represents a value of 13.6 times calendar year 2021 expected adjusted EBITDA.
While the valuation is in line with our current multiple on consensus 2021 EBITDA, we believe PA has the ability to accelerate adjusted EBITDA growth to levels beyond Jacobs' standalone growth for multiple years, both driven by PA's organic strategy and from our joint Jacobs and PA revenue synergies. As a result, the internal rate of return for the transaction is highly attractive at above 15%. We will fund our equity investment in PA through existing cash, a revolver line of credit, and an expected new term loan. As a result, our Q4 2020 pro forma debt, including the new debt, and assuming that we factor in our wholly equity ownership as cash, is approximately $2.4 billion. This represents approximately two times net debt to adjusted calendar 2021 pro forma adjusted EBITDA of the combined Jacobs and PA.
As we expect that the transaction will close by the end of our second fiscal quarter ending in March 2021, we would expect EPS benefits approaching $0.25 in our fiscal 2021 figures, and we would expect our fiscal year 2022 adjusted EPS to improve by over $0.52. Turning to slide 19, I provide more detail on the components of the transaction with additional disclosure available on our press release on Form 8-K filed this morning. Again, the total enterprise value of PA is nearly $2.4 billion, with an equity value of $1.53 billion, of which Jacobs will own 65% and PA employees own 35%. The PA employees will be reinvesting at least 50% of their consideration received from this transaction, which represents the approximate 35% ownership at closing of approximately $535 million.
Our $995 million equity investment is in the form of both preferred equity, which provides the 65% value interest in PA, and common shares, which represents the 65% voting interest. The preferred equity accrues value at a 12% annual compounded coupon. Jacobs will also provide the $845 million of debt finance to PA Consulting at LIBOR plus 425 basis points. To incentivize PA employee shareholders to drive accelerated, sustainable, profitable growth, an equity incentive pool equal to 25% of common shares will be established. Specifically, funding of the common equity and the equity incentive pool will be subject to PA valuations reaching levels that first satisfy the terms of the 12% coupon on preferred equity and the outstanding debt of the partnership. Turning to slide 20, PA has demonstrated strong double-digit adjusted EBITDA growth from 2016 through its forecasted calendar year 2020.
The performance is driven by high single-digit pro forma revenue growth, margin expansion, and small strategic bolt-on acquisitions. The company's industry-leading EBITDA margins of over 20% are a testament to the high-value solutions they provide to their clients. Given our collective partnership to drive expected revenue synergies, we believe organic revenue growth can accelerate into the low double digits with additional growth driven by bolt-on M&A. From a profitability standpoint, while PA's expected 22% adjusted EBITDA margins are impressive, we would expect future adjusted EBIT margins to temper slightly but remain above 20% in the medium to longer term.
Turning to slide 21, as a result of the PA consolidation into our reported financials, over the medium term, we expect an accretion of approximately 75 basis points of benefit to our organic net revenue growth and an approximate 70 basis point benefit to adjusted operating profit as a percentage of net revenue. Adjusted EBITDA growth will also be enhanced on a pro forma basis by approximately 75 basis points. And finally, from a free cash flow conversion standpoint, PA will support a pro forma improvement in our free cash flow conversion given PA's very efficient working capital levels. And in summary on slide 22, both Jacobs and PA see significant opportunity to partner and solve many of the world's most complex challenges posed by climate change, urban development, and ongoing healthcare challenges.
Our collective talent can and will accelerate the development of solutions that help clients to successfully leverage next-generation digital technologies and innovation. We are excited about our aligned culture centered around a common purpose of innovation to create a more sustainable, connected, and technology-driven world. With that, I will open the call for your questions.
As a reminder, if you would like to ask a question, press star followed by the number one. That is star one for questions. The first question comes from the line of Michael Dudas with Vertical Research Partners.
Good morning, gentlemen.
Morning, Mike. Morning. I see you didn't have much time to enjoy Thanksgiving dinner, it seems, after this transaction announcement today.
You're correct for the most part. We've skipped our dinner, but we worked hard over the weekend. Terrific. Thank you. My first question here, two questions.
First, thinking about with this transaction the ability to leverage the PA Consulting talent through the Jacobs platform, what type of revenue opportunities did you see through this pretty long due diligence process that emerged? Can you indicate in the prepared remarks, either Bob or Steve, about the U.S. mix in PA's business and there's opportunities there? So you can maybe share a little bit of that thought, and is there some sort of percentage basis or target level over the next medium term that can help the current Jacobs platform with PA's solutions?
Yeah. So Mike, thanks for the question. I'll start and then hand it over to Bob and Kevin to build on it. There's a tremendous amount that PA brings to Jacobs, and obviously, as we're announcing it today, that PA perceives that Jacobs brings to them.
And you mentioned one of the areas is the U.S. market. Clearly, PA has done an amazing job on growing around the world, especially in the U.K. and Europe. And that's really going to be a market that together we each bring complementary domain capability and client relationships, etc. But the geographic expansion, the clients that we have around the world, the geographic presence we have specifically in the U.S. is going to be a significant revenue growth and revenue synergy opportunities. Bob highlighted the four initial sectors. We'll obviously be covering all of the great market opportunities that they have and we have, but health and life sciences, the defense and security, the public services, consumer manufacturing are the initial areas where teams are going to be formed and working collaboratively to drive significant revenue synergies, which we believe are definable and real. Bob, anything to add to that?
Yeah, absolutely. So Mike, I mean, I think you think about it from a capability standpoint, and really that early upfront high-end type solutions that the PA brings while our clients are looking at business challenges. So I think it's that element that then if you look at how those business challenges then morph into whether it be a project or a transformation within the business or even a reinvention of the business is where those capabilities really come together. The other thing I highlight is that if you remember in February of 2019, we talked about market connectivity where we see our end markets, our end sectors starting to converge in solutions, whether they be digitally enabled or some form of technology, AI, predictive analytics, other things within data science are spreading different markets such as transportation and water in our health and life sciences business.
PA is really going to help accelerate that. So from a percentage of effect on the Jacobs business, I think it gives us more visibility, greater expertise in order to address what the challenge is, and then enhances our ability to solve those.
Thanks. I appreciate that answer. My follow-up would be relative to the two-part follow-up. First, does the deal structure allow for Jacobs an ability to increase an investment in PA over time, and how does that look relative to the partnership going forward? And maybe for Kevin, how does, given the net debt leverage ratio you have now and what you've historically talked about being comfortable, maybe you can refresh us on that level of comfort levels on net debt ratios, how deleveraging fits in the queue relative to your enhanced free cash flow generation and given this transaction on a go forward basis? Yeah.
Let me just start with just kind of the future thinking is that we spent a lot of time thinking together with PA on the right structure. As we outlined today, the success scenario that we believe is keeping their independence, which has had a great track record, and to keep that going well into the long term. So under Ken Toombs' leadership, you can see the structure is that it will be essentially a third leg of Jacobs, but run independently with the collaborative teams in place to drive what Bob just talked about. The way it's set up where both companies are highly incentivized to succeed, we just see that going on and continuing in the future. Kevin? Yes, Steve.
So Mike, on the leverage factor, we kind of talked about the fact that we'd be in this kind of mid-2s on a net debt basis as we characterize the numbers that we just discussed, actually getting to, when you take into account the cash, probably closer to two times. And so at this particular point in time, probably as we close, there will probably be an initial stance that we will be thinking about ensuring that the leverage factors can be reduced a tad, but we're not pressured by any stretch of the imagination. And with our ongoing cash flow opportunities that are driven by not only our existing business, but PAs as well, the ability to delever will happen very, very quickly.
Consequently, I think after six months, we're going to be in a really, really good position, and we'll be able to be thinking about any other potential opportunities to deploy capital to the extent that they may make sense.
The next question comes from the line of Joseph DeNardi with Stifel.
Thanks. Good morning. Maybe I think just a couple of quick ones for Kevin. You all talked about the double-digit EBITDA growth beyond FY21, I think, with earnings. I'm assuming this is additive to that, that that was kind of an organic expectation. Is that right? Correct. Okay. And then maybe Steve or Bob, just in terms of the leverage for PA, the necessity or the comfort level of putting $845 million on the business, why do they need it? What are they going to use it for? Can you maybe just explain that a little bit? Thank you.
Yeah, Bob, go ahead and take that one.
Yeah. It really, Joe, is around expansion to the U.S. I think that's really, if you look at the synergies between the two companies, that access, taking those capabilities that I talked about previously and applying them to our client base in the U.S. and extending that successful track record that they've had in the U.K. and abroad, I think is the real benefit here as far as putting their balance sheet to work through successful engagements with our clients. So I think that's going to be the key, and the cash-producing elements of the business standalone are really, really strong, so we see that kind of being a machine that can feed itself.
The next question comes from the line of Andrew Kaplowitz with Citigroup.
Close enough. How are you guys doing? Good. Hey, Andy.
PA has obviously had strong revenue growth, which you talked about over the last five years, I think 11%. Could you go into a little more detail regarding that growth? How much of it has been organic versus acquisitions? What's the strategy been there? And then I think you guys mentioned the jump in EBITDA margin in 2020 and a bit of a tempering there going forward. Is that because costs might be coming back from the pandemic? Is there something else that tempers the margin there?
Do you want me to go, Steve, or do you want to go?
Okay. Go ahead. Jump in, Kevin.
No, look, the margin has been extraordinarily strong, obviously, in 2020, and they've been doing very, very well within the construct of the pandemic.
So it's a clear indication of the value that they're bringing to their client base during some very challenging times. We do believe that the opportunity in the U.S. is going to be substantial, and the margin profile in the U.S. is probably a little bit lower than the rest of their business. So no other reason other than the mix of the business as the U.S. opportunity continues to expand, which we think is a great opportunity, as Bob highlighted as well, that there will be some mixed dynamics associated with the margin profile. So nothing other than that is really our expectations.
The next question comes from the line of Jamie Cook with Credit Suisse.
Good morning. I've never had that. My name. Anyway, no worries.
So, question one, two follow-ups, and then one: what was the company's just sort of strategic rationale to make this investment with you today? I think you said during prepared remarks, you'd been talking to them for two years. I'm just trying to figure out what the motivation is today versus where we've been. And then Kevin, can you just give us color on what the backlog you're acquiring and what their geographic mix is? Thanks.
Yeah. Good morning, Jamie. So thanks for the questions. So look, there's some good comments in their press release, PA Consulting's press release that outlines their rationale and how they got to this decision. But clearly, they had choices. And one of the main choices they had was to stay completely independent and flip the Carlyle ownership to the next PE firm. And there was significant interest in that across the market.
What we did, and we took the time to meet with them and lay this out, that we can give them the best of both worlds, that we can mirror that independence and structure and continue to have them unleash their growth, their organic growth and inorganic growth that they've had a great track record on. But that we can bring the additional benefits that we've been outlining in our prepared remarks and some of the answers to the initial questions around not just unleashing the U.S. market and other markets around the globe where we have strong positions, but just several joint opportunities. We have a tremendous opportunity to leverage their IP across our client base. They have world-class innovation centers. You've heard us talk about starting up and investing in innovation centers. We now can shift to utilizing their innovation capabilities, which are huge.
And even culturally, there's things that were pretty amazing as we got into it that we're both on the journey of really focusing on our culture and recognizing how culture drives performance. And so things like inclusion and diversity and other elements that we can together take it to another level. And so it's pretty broad-based on the opportunity for them to continue their journey in their independent fashion, but leverage the power of what this partnership can do under a common ownership.
So Jamie, let me just take the question on the backlog. The backlog is a little bit shorter in nature than what I would characterize as a typical Jacobs backlog, but their strength is robust at this particular point in time. Actually, backlog is up 33% over the last 12 months. I think that's as of August 20.
They're obviously very, very strong, well-positioned for not only 2021, but beyond. But their backlog does tend to be a little bit shorter in nature relative to ours, just given that we have some of these very larger contracts which extend beyond a year or two.
The next question comes from the line of Louie DiPalma with William Blair.
Steve, Kevin, Bob, and Ken Toombs, if you're on. Good morning. Good morning. Good morning. Just one follow-up on some of the previous questions. Are you able to disclose what percentage of PA's revenue currently comes from the U.S. market?
Yes. It's approaching almost 80%. No, no. That's not a U.K. Sorry. 10%.
The next question comes from the line of Steven Fisher with UBS.
Thanks. Good morning.
I'm not sure if I missed it, but can you talk about what are the synergies that you actually have baked into your fiscal 2022 estimate, if at all, and how would you frame sort of upside and downside risks around that kind of $0.52-$0.57 of accretion? Kevin?
Yeah. So the synergies obviously are about driving the incremental growth. So there are some assumed synergies, but they're not substantial. So the great bulk of the $0.52-$0.57 is relative to organic. If you're at the top end of that range, you'd probably start to be seeing some incremental revenue synergies bringing incremental profitability. If you're at the bottom end, it'd be a little bit slower in terms of its development. So maybe I can give that perspective to you.
The next question comes from the line of Andrew Wittmann with Baird.
Okay. Thanks, guys.
I just was hoping to get a little bit of detail on the capital structure here in particular. I guess just wanted to confirm that the preferred dividend paid in cash, is that going to be recognized on other income? And really, I guess to understand that 25% incentive share, I guess knowing that the number of common shares versus preferred shares that comprise the total equity that you guys are contributing here would be helpful so that we know what the 25% of common is relative to. Kevin?
So the preferred ultimately is not paid in cash. So it's only ultimately driven to a liquidating event to the extent that there is one. So your preferred equity grows over time as it relates to that. So that's the first question.
The second question relative to the common, effectively, there is an opportunity for there on an annual basis to be a valuation of the PA entity, of which obviously we are a 65% equity owner. And then PA shareholders and employees are 35%. What ends up happening, that value creation to the extent that there is an ability to fund the preferred and then a value a total value of the company, then what ultimately happens is the common equity, which is valued de minimis upon entry into the partnership, you start to build value of common equity. And what that value of common equity is, is 65% Jacobs, 35% PA shareholders. And then they contribute to create an additional pool of potential value opportunities prorated by their ownership interest.
So the common equity just starts to build on value as the company builds and continues to grow and create additional shareholder value, of which both Jacobs, the PA shareholders, and then the incentive 25% incentive pool ultimately grows over time as well, which is funded pro rata by the common shareholders of 65%-35%.
The next question comes from the line of Jerry Revich with Goldman Sachs.
Yes, hi. Good morning, everyone. Good morning, Jerry. Good morning, Kevin. I'm wondering if you could just expand on the opportunity set for PA Consulting. You had mentioned the backlog here is shorter than the base business. Can you just talk about the cadence of opportunities that PA Consulting is bidding on? What's the pipeline look like? The win rate? And if you could, please comment on the margin improvement journey that the company's been on.
Is that been driven by mix of work? Is that cost reductions? Can you just talk to those two points, please? Sure. Bob?
Yep. So Jerry, on the first one with regards to the win rate, Kevin highlighted what the classic accounting definition of what backlog is. And you kind of talked about that short cycle, 33%-35%, 40%. If you go out on a 12-month window and then add on to that what are either high probability or almost, we would see it as extension-type work, that number goes north of 90% on a 12-month basis, which is really, really strong. The win rates are high. They're at or above where we, Jacobs, have historically been. A lot of that is from long-term client relationships and, quite frankly, just really solid value in making the client's business better.
And so we feel really strong and confident that from that perspective, just on the mechanics of the business, they not only profile to us, but are even a little better than we are so we can learn from each other. From where they have increased their margins, yes, there have been some focus and fix-type efforts similar to us in the 2016 and 2017 timeframe. But really, the focus piece was getting out of geographies that they weren't growing or making the expected margin profiles they needed and focusing in on geographies and clients to where their value was recognized and they could move up that value chain. Moving up that value chain has increased their margins. And so that's really been kind of that mix of work component as well as focus and fix to keep that margin profile high and with prospects of even getting better.
The next question comes from the line of Chad Dillard with Bernstein.
Hi. Good morning, guys. So I just wanted to go back to the four focus areas that you guys talked about in the prepared remarks related to revenue synergies. Perhaps you could rank order what the most important opportunities are or even give color on of that $100 billion in TAM. How does that break out? And then also just talk about just the cycle time. How long from going to a bid to award should we expect some of these awards to materialize?
Yeah. Bob, why don't you keep going here?
Yeah. Absolutely. So Chad, those four that we highlighted, health and life sciences, public services, which when we say public services, kind of think in U.S. terms, this would be our Fed civilian, Fed health type arenas. Defense and security and consumer and manufacturing.
Those are the four real high-priority areas where we see immediate. We're talking within post-close, within the first couple of quarters, we could see some real traction. And then from a geography standpoint, that not only extending a strong platform that's in the UK and in the Nordics, but seeing immediate traction in the U.S. because our clients are asking us for these types of capabilities and these types of services. And in a few cases, PA is already involved with those clients. So we see that. Now, if I were to take that and prioritize what would rank to the top of that, it would be in response to the pandemic.
If you look at what's going on right now with regards to the supply chain in a world where we're now going into therapies as well as other vaccines and remediation-type efforts, PA is already in the middle of it, and so are we, and I think combined, we're going to see some really nice traction.
The next question comes from the line of Sean Eastman with KeyBanc Capital Markets.
Hi, team. Thanks for taking my questions. In the release materials, you guys indicate this partnership changing the shape of the industry, and I just thought that stood out as a pretty bold statement, so in light of that, it'd be great to just expand on what gives you the confidence to make such a bold statement around this, and then you guys also characterized this as a first-mover advantage.
So I'm curious whether you're expecting to see others soon follow here with similar types of partnerships.
Yeah. Look, as far as why we think we're in a unique position and have an opportunity to really go after the whole reshaping and the disruption that's taking place is the unique combination. There really is no other company that is coming together that has the domain capability that we have, the capabilities that we bring coupled with this great strategic digital consulting firm, PA Consulting. And so when you just put these two together, it is, as far as we can see, unique and then brings that capability to offer our clients true end-to-end solution capabilities that others are not going to be able to drive. So with regard to others, yeah, I think everyone's looking to go after these same disruption macro opportunities.
We believe that our announcement today is going to give us an early entry into capitalizing on those and therefore gaining above-market share opportunities.
The next question comes from the line of Joseph DeNardi with Stifel.
Hi, thanks. Thanks for the follow-up. Steve or Bob, I think, are there any unusually large material contracts or customers we should be aware of? And then can you just talk about kind of your expectations for Brexit and what that means for the business?
Thanks. Yeah. Bob, go ahead with it.
As far as, Joe, maybe a clarifier, as far as large customers, do you mean that PA is currently working on that would be a synergy opportunity?
Or so, are there any material larger than 10% contracts or key customers that we should be aware of for the standalone business?
Yeah. The standalone business, pretty diverse.
As far as greater than 10%, I'd probably point to the defense and security world within the UK. But again, the work is so diversified and in different arenas than what we, Jacobs, have typically operated in, we actually see it as a benefit. As far as private sector and the—I don't know if it reaches the 10% hurdle, but if you think about the top three to four big pharma, whether it be in straight life sciences or in manufacturing capacity or in medical devices, there are a few that could hit those kinds of thresholds. But again, we see them as opportunities because we're at a different part of the supply chain today than encumbrances or any kind of conflicts. We did take a really hard look at what would potential conflicts be.
And similar with CH, we didn't feel like there were those that would be of that put us in a zone of discomfort. As far as Brexit goes, we actually see Brexit as an opportunity. As the UK is trying to form what a post-Brexit world looks like, PA is in the middle of helping shape what that looks like. And as were we as it pertains to the capital project pipeline that ensued. So together, if you think about it from an organizational dynamic standpoint, organization meaning the UK government, and then how that's going to affect stimulating the economy, you've got now two platforms that touch different parts of that end-to-end life cycle of solutions to generate economic development that are going to be really, really powerful in a blueprint that we feel strongly we can bring to the US.
We have a follow-up question from the line of Steven Fisher with UBS.
Thanks for the follow-up. Just wanted to ask a little bit more about the notion of the semi-independent nature of this structure. I mean, it sounds like you have well thought it out and how it can work and how it's incentivized. But can you just elaborate a little bit more there on what you'd have to sacrifice by not having it fully owned and how you get around any of the kind of conflicts that may come up by it not being fully owned?
Again, you're correct that this is well thought out. We've spent a lot of time on this ourselves and a lot of time together talking with the PA Consulting's leadership.
We think this is the strength of today's announcement. The way we've structured it is that to get the best out of the stake that we're acquiring is to clearly keep the independence. It's been successful. The partners and the employees of PA Consulting have thrived under this kind of structure, and we want to do everything to keep that going. But at the same time, both companies are excited about coming together on the opportunities that Bob has talked a lot about today. That is the reason why we're having this announcement today. If that didn't exist, there'd be no reason for PA Consulting to have chosen us with regard to the next phase of their journey.
And so we think that by doing this, we don't distract the key organic growth opportunities that we have, our Focus 2023 initiative, everything we've talked about for our People & Places Solutions and Critical Mission Solutions. But at the same time, there are going to be common opportunities that start with culture, that are around best practice processes, etc., that we'll be able to share and unleash. But the biggest opportunity here are the revenue synergies that are clearly sitting there in several markets that either we're in, they're in, or together we're in. And we think we've set up a structure that gets, again, the best of both worlds of continuing the successful independence of PA Consulting but driving a tremendous unique combination like no other in the industry.
We have a follow-up question from the line of Louie DiPalma with William Blair.
Thanks for the follow-up.
Kevin, you mentioned the PA Innovation Center and intellectual property. Does PA Consulting own the intellectual property for iPredict with San Diego Gas and Electric such that you can sell it across the Jacobs customer base? Because it just seems that some of these innovations are similar to what Jacobs does with your intelligent asset management and your water solutions. So I'm just trying to get a sense. Does PA have a lot of its own internally developed technology and software?
Yeah. Louie, so I'll make some preliminary comments and see if Bob has anything to add. They do own intellectual property as it relates to a variety of their efforts. Sometimes they share that in the domain areas that they have co-developed with their customers, and sometimes they then own it outside of that sector in which the customer is.
For that specific question on the intellectual property, I'm not exactly familiar with that one, but clearly, there is intellectual property that the company does have that we believe is leverageable and which they believe is leverageable and which they continue to do throughout their growth strategy, so it's one of the attractive opportunities associated with coming together, and their innovation centers are kind of creating a foundation of a lot of the work that they do, which is really exciting about the innovation that they're able to bring to their clients. Bob, anything to add from your side?
Yeah. Maybe just a couple of comments, and I'll hang on, Kevin, your last comment. We get really excited about this. Just to answer directly, Louie, your question about iPredict, it is a proprietary technology that PA owns.
You appropriately highlighted that the adjacency applications of that technology to water solutions, both treatment conveyance as well as wastewater treatment conveyance systems, is enormous. And we really feel strongly that that's going to be a force multiplier for providing value to our clients. That goes on and on. Everything from point-of-use treatment systems to other different types of technology that can be applied to geospatial and other elements that we were already in gets us really excited about those cross-collaborations and those growth opportunities that we can bring to each other's business.
Again, if you would like to ask a question, press star one. There are no further questions at this time. I will turn it back over to the presenters for closing remarks.
Thank you. Well, hopefully, you've got a flavor of a tremendous combined vision potential here of PA Consulting and Jacobs.
The bottom line is it accelerates the shift to our higher value journey, specifically in technology-enabled solutions. We look forward to keeping you updated on our quarterly earnings calls. Thank you.
This concludes today's conference call. You may now disconnect.