By David Carnevali

Engineering consultant Jacobs Solutions Inc is in advanced talks to merge its government consulting arm at a valuation of more than $4 billion with private equity-owned Amentum Services Inc, people familiar with the matter said on Thursday.

Under the terms discussed, Amentum would merge with Jacobs' Critical Mission Solutions (CMS) business to create a new publicly traded company that would be majority-owned by Jacobs' shareholders, the sources said.

The contemplated deal would utilize a so-called Reverse Morris Trust structure that would make the transaction tax-free to Jacobs shareholders, the sources added.

If the negotiations between Jacobs and Amentum's owners — buyout firms American Securities and Lindsay Goldberg — conclude successfully, a deal may be announced by Nov. 21, when Jacobs is scheduled to report its fourth-quarter earnings, according to the sources.

Jacobs, Amentum, Lindsay Goldberg and American Securities did not immediately respond to requests for comment.

Jacobs' CMS platform provides cybersecurity, data analytics and software application services and consulting to civilian, defense and intelligence clients in industries including space, national security, nuclear waste and 5G technology.

Jacobs CEO Robert Pragada had said on the company's latest quarterly call in August that "multiple" suitors had expressed interest in CMS.

The business, which generated $4.4 billion in revenue in its latest fiscal year, was awarded a $3.2 billion contract in February to support several NASA programs, including the Artemis II mission to the moon.

The deal with Amentum would free up resources for Jacobs to focus on its people and places solutions division, which provides transportation and environmental consulting to government entities and private sector clients, and PA Consulting, a management consulting business advising across several sectors. These operations generated $10.5 billion in revenue in Jacobs' latest fiscal year.

Amentum provides technical and advisory services to government clients including the Air Force and NASA, as well as commercial clients such as ExxonMobil and Caterpillar . American Securities and Lindsay Goldberg formed the company by carving it out of engineering consultant Aecom in 2020 in a $2.4 billion deal.

Amentum bolstered its offerings with the takeover of rival PAE in 2021 for approximately $1.9 billion, creating a company with over 50,000 employees and more than $9 billion in revenue.

(Reporting by David Carnevali in New York; Editing by Lisa Shumaker)