April Issue: Right Sales Time For Cushman & Wakefield?

Cushman & Wakefield owners are looking to cash out their investment.
CUSHMAN_180 Maiden Lane2

A year ago, the majority owners of Cushman & Wakefield Inc.—the Agnelli family and its investment arm, Exor SpA—were rumored to be pursuing a sale or an IPO of the New York City-based global services firm. Neither happened then, but analysts and industry insiders knew that it was only a matter of time before the family would look to cash out its investment.

That time appears to be here. And the Agnellis’ timing for a sale looks spot-on, even though the price tag is a reported $2 billion.
While that may seem “relatively expensive,” JMP Securities analyst Mitch Germain noted, “there are not many entities that offer the breadth globally and the brand that Cushman & Wakefield has.”

Word that a sale might be in the works surfaced shortly before the company reported record profits and revenue on March 12. Gross revenues hit $2.9 billion in 2014, a 14 percent year-over-year increase. Adjusted net income rose 33.3 percent to $61.6 million.

Edward Forst, C&W

Edward Forst, C&W

Five weeks before the release of the earnings report, C&W Group Inc.’s board of directors established a committee to review strategic alternatives and tapped the firm’s president & CEO, Edward Forst, to lead it. The board also assigned Goldman, Sachs & Co. and Morgan Stanley & Co. to serve as advisors.

“It’s probably a good time for them to sell,” Ken Weissenberg, partner & co-chair of the real estate services group at EisnerAmper in New York City, told Commercial Property Executive. “The market hasn’t been this hot for 10 years.”

“The timing for such a deal makes sense, in our view, as momentum across all facets of the commercial real estate sector is strong,” a JMP Securities investors report from Germain and Peter Lunenburg stated. “The industry is in the midst of a consolidation phase with premium pricing being paid for larger transactions, while many of the key principals of the firm have an economic stake in the company, paving a path for a potential transaction.”
Exor and the Agnellis own 81 percent of the firm; employees own the remainder.

In late February, when The Wall Street Journal reported that the firm was on the market, a company spokesperson offered only a non-committal response:

“As is the normal course of business, both Cushman & Wakefield and Exor continually seek ways to further enhance the business, create value and further accelerate their plans.”

Who Will Buy?
Cushman & Wakefield is the world’s third-largest real estate services company, after CBRE Group Inc. and JLL, but a sale to either firm is unlikely, analysts say. For one thing, Exor reportedly doesn’t want to sell to a top competitor and would prefer a private buyer such as a private equity firm or sovereign wealth fund.

Weissenberg, who has represented private equity firms, said the $2 billion price tag could be “a big price for a local competitor to pay. But for an international firm looking to establish a presence in the U.S., it’s a high price but a very significant footprint.” He added, “There’s always an appetite in private equity for a successful company.”

Brandon Dobell, an analyst with William Blair & Co., agreed that the winning bidder might come from the private equity world. “In this case, we’re down to a relatively small list of potential buyers, most of which are going to be private equity,” he told CPE.

Both Dobell and Germain of JMP Securities brought up Brookfield Asset Management’s name. “They know the real estate business. They like the real estate space,” Dobell said of the Toronto-based asset manager.
And then there is The Blackstone Group. The investment management and financial services giant has the deep pockets, along with a possible strategic reason to bring Cushman & Wakefield into its expansive fold.

“Blackstone is a massive property investor,” Dobell explained. “They could say, ‘We’ve got the properties; we’ve got to have somebody to lease and manage them.’”

A group effort might also succeed. In a recent example, TPG Capital, PAG Asia Capital and the Ontario Teachers’ Pension Plan bought DTZ from UGL Ltd. for about $1.1 billion last year, then acquired Cassidy Turley.
“It’s a big bite to chew off for TPG,” Dobell said. “But it’s a rare opportunity in the space to go from nowhere to No. 2 or 3.”

“Cushman & Wakefield would be the jewel in the crown of any international brokerage and real estate services firm (seeking) to establish a presence in the U.S.,” Weissenberg added.
And if competitors do get a chance to bid, analysts suggest keeping an eye on BGC Partners, which owns Newmark Grubb Knight Frank. The JMP Securities report noted that BGC was active in M&A last
year, acquiring Cornish & Carey Commercial in the San Francisco region and Apartment Realty Advisors.