Cushman & Wakefield has issued a revealing 334-page preliminary prospectus ahead of its IPO. EG picks out 17 juicy bits to digest.
1. It will be a really big listing
It is set to be one of the biggest listings in the US this year and while the number of shares and price range have not yet been determined, most estimates put a value at more than $5bn.
As of March, on the basis that its listed peers, such as CBRE, Savills and JLL have an earnings multiple of around 0.92 on a price/sales basis, C&W’s stated $6.9bn global revenues would imply an equity value of around $6.3bn.
Cushmans prepares to launch IPO
2. C&W really is in the same league as JLL and CBRE
“We are a top three global commercial real estate services firm” says the opening paragraphs of the prospectus, and its $6.9bn of revenue puts it squarely in the same league as JLL and CBRE. It is only $1bn off breaking into the top two.
By staff numbers it is dwarfed, however, with only 48,000 employees compared with more than 80,000 employed by each of the top two.
3. Revenue is growing fast
Last year, Cushman saw its revenue grow 11.2% from $6.2bn, largely driven by fee revenues of $5.3bn. In the first three months of this year it has generated $1.8bn and, if it upholds this performance throughout the year, it will hit $7.2bn.
4. Three years of losses
Despite this, the company in its current guise – or at least since the acquisition of DTZ in 2014 – has never made a profit.
It recorded an operating loss of $410.4m in 2015, $313.4m in 2016 and $170.2m in 2017 as the various acquisitions have weighed on the books. The three months to the end of March saw an operating loss of $80.7m.
This is attributed to an aggressive acquisitions programme and merger costs.
5. C&W is attributing a lot of value to its brand
“The history of our franchise and brand is one of the oldest and most respected in the industry,” says the prospectus, which traces the lineage of predecessor DTZ to 1784 with the founding of UK firm Chessire Gibson. Relative newcomer Cushman & Wakefield was founded in 1917 in New York.
6. The cost of acquisitions are laid bare…
The exact costs of the recent plethora of corporate deals in Cushman’s history are fully disclosed for the first time.
The purchase of DTZ from Australian engineering group UGL in November 2014, by TPG Funds, PAG Asia Capital and the Ontario Teacher’s Pension Plan, was made for $1.1bn. On 31 December 2014 it then bought and merged Cassidy Turley into this for $360.4m.
Finally, in September 2015, Cushman & Wakefield was bought – and its name adopted – for a total cash consideration of $1.9bn.
7. ….so too are the details of its ownership
Private equity funds or plans sponsored by TPG, PAG Asia Capital and OTPP own 90% of outstanding shares, with the current breakdown as follows:
■ TPG Funds: 44.7%
■ PAG Asia Capital: 33.6%
■ Ontario Teachers’ Pension Plan Board: 11.7%
A listing means the new ownership will be evergreen rather than passed from pillar to post between owners. The exit is broadly in the normal exit window for private equity, but owners will not be able to make a quick and complete exit due to regulations requiring them to hold on to substantial stock, at least in the near term. Those with lower cost of capital could stay in longer.
8. It’s got a lot of debt…
“We have a substantial amount of indebtedness,” says the prospectus, which it says may “adversely affect our available cash flow and our ability to operate our business, remain in compliance with debt covenants and make payments on our indebtedness”.
At the end of 2017, total debt was $2.8bn, nearly all of which consisted of credit agreements.
It adds: “We and our subsidiaries may still be able to incur substantially more debt, which could further exacerbate the risks associated with our substantial leverage.”
9. …but it will be paid off fast
Net proceeds from the listing will be used to:
- reduce outstanding indebtedness, in particular to repay our Second Lien Loan, which matures on November 4, 2022 and which has an interest rate of 8.9%;
- repay the outstanding amount of the Cassidy Turley deferred payment obligation; and
- for general corporate purposes.
10. Cushman has a clear idea of the future of the property agent…
Cushman says opportunities for growth will come from:
■ Continued growth in occupier demand RE services.
■ Institutional investors owning a greater proportion of real estate
■ Owners and occupiers consolidating RE service providers
■ Global services providers creating value in a fragmented industry
Technological innovation
It says its “primary business objective is growing revenue and profitability by leveraging this platform to provide our clients with excellent service”.
The focus will be on: recruiting and retaining “top talent”; expanding margins through operational excellence; leveraging breadth of services; and deploying technology to improve “client experience”.
11. …although there are still a lot of risks
Any proposed listing requires a list of all risks associated with a business and C&W is no exception. These are the things it says should be keeping agents (and potential investors) awake at night:
■ Disruptions in economic, social and business conditions
■ Industry consolidation or innovation leading to competition
■ The ability to retain staff
■ The inability of acquisitions to perform as expected
■ Perceptions of company brand and reputation
■ Operating and financial restrictions imposed by credit
■ Executing information technology strategies and new laws and regulations
12. There is still a DTZ Jersey Holdings Limited holding company – but not for long
The listing means the current shareholders of DTZ Jersey Holdings Limited will exchange their shares for newly issued shares of a private limited company to be organised under the laws of England and Wales, to be named Cushman & Wakefield.
Despite all this, the listing will be on the New York Stock Exchange.
13. Shareholders should not expect any dividends for a while
“Because we do not currently intend to pay cash dividends on our ordinary shares for the foreseeable future, you may not receive any return on investment unless you sell your ordinary shares for a price greater than that which you paid for it,” spells out the prospectus.
The intention is to retain future earnings –“if any” it says – for future operation, expansion and debt repayment.
14. Expect a listed company to keep doing M&A
“We have an ongoing pipeline of potential acquisitions to improve our offerings to clients across geographies and service lines,” the prospectus add.
“We expect to be able to continue to find, acquire and integrate acquisitions to drive growth and improve profitability, in part by leveraging our scalable platform and technology investments.
15. The biggest thing missing is a global investment management business
LaSalle IM and CBRE GI, as the table below shows, make up a proportionately small amount of total revenue, but larger amounts of operating income and profit.
C&W could be in the market to make a big play, but opportunities do not come around very often.
16. Brett White earned nearly $2.5m last year
Chief executive Brett White earned a cool $2.5m last year. However, he was still wildly overshadowed by his rival at CBRE, Bob Sulentic, who earned nearly 3.5 times more at $8.6m
17. Words signal intentions
The 334-page prospectus has more than 150,000 words and is longer than the average novel. These key words used are used the following number of times:
■ Growth: 92
■ Debt: 258
■ Profit: 37
■ Loss: 379
■ Experience: 38
■ Technology: 58
■ Opportunity: 57
■ Brett: 14
■ Customer: 63
■ Partner: 34
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