The new Cushman & Wakefield – incorporating DTZ – is to focus on bolstering three key service lines as it looks to become the world’s biggest real estate adviser, according to chief executive Brett White.
After several days of final negotiation – and weeks of speculation – White spoke to Estates Gazette ahead of announcing the $2bn (£1.3bn) deal with DTZ on Sunday night in New York.
The landmark transaction creates a $5.5bn-turnover firm, bigger than JLL, though some way behind CBRE, whose revenues reached $9bn last year.
Asked whether he wanted the number one spot, White said: “Who wouldn’t?”
Working alongside him will be Carlo Barel di Sant’Albano, who is to stay on in a “senior position”. The challenge of building the world’s biggest property adviser was clearly an incentive for the international chief executive of C&W. “Winning,” said Sant’Albano with relish, “is an exciting proposition.”
But this uncontained ambition would count for nothing without a clear vision for driving the business forward. That’s why TPG, the private equity giant whose acquisition this year of DTZ then US firm Cassidy Turley led to the C&W deal, appointed White when it bought the business.
White spent nearly 30 years at CBRE, including almost eight as chief executive. He expects further acquisitions to follow.
“We are eager to see the business continue to grow organically and through M&A,” White said before he set out his three priorities. “The combined business will have strong cashflows and access to further capital from our ownership consortium to continue to grow. There is more than $1bn of new equity coming into the business and I think it is fair to say they want to continue to see this company grow both organically and through investment.
“We have great ambitions in our capital markets space, in our leasing and global occupier space and in investment management. DTZ has a very nice investment management business based in London which works across Europe. And in time we would be interested in seeing that grow globally.”
The combined business will seek to capitalise on DTZ’s strength in New York, for example, and DTZ’s strength in China. Sant’Albano said the business would focus on growing in a number of geographical markets, including major European cities and South America.
John Forrester, DTZ’s head of EMEA, said there were opportunities in London too, including in new-home sales. Forrester will have a “strong” leadership role in EMEA and will work with Sant’Albano on integration, stressed White, who will himself combine the roles of chief executive and chairman of the business.
Current DTZ chief executive Tod Lickerman will become president of the combined business, while John Santora, C&W’s chief executive of North America, will become chief integration officer and chief operating officer. White said the firm was not yet ready to confirm other positions.
But he was clear on the rationale for the deal. “It is in response to what clients demand of service providers,” he said. “Post merger we will be much broader and deeper in our capabilities together globally, which is what clients are demanding of these firms today. The combined business will be an absolute top-tier provider in every major market in every service line worldwide.”
And White said he was quite convinced the firms had complementary cultures and – with 43,000 employees in 250 offices across 50 countries – would be a magnet for talent.
“I have been involved in a lot of transactions in this industry and this is the first one that is truly a merger of equals,” he said. “These businesses have very similar EBITDA but very different footprints, both geographically and by service line. Though the acquiring entity is DTZ, this is a Cushman & Wakefield-branded business post-close.”
Sant’Albano said talks between the businesses had been active for six months. “In Europe this is going to make us a stronger platform across all major markets. It accelerates where we wanted to be by a few years.”
As well as TPG, the other two members of the consortium behind the deal are PAG Asia Capital and Ontario Teachers’ Pension Plan. TPG will hold 50% of the enlarged business, PAG 35% and Ontario 15%.
In a statement, C&W’s majority owner Exor said it expected the deal to complete in the fourth quarter of 2015. But White hinted it could be sooner.
“The completion date will be as soon as we can get the deal closed. There are regulatory approvals that are required, but we are highly confident those will be done very quickly. Unfortunately, we cannot predict when the close date will be, but it should be both in due course and in fairly short order.”
Whenever that close date falls, White is well aware that the game has changed. “We are now truly a head-to-head competitor with CBRE and JLL,” he said. It’s clear that he won’t rest there.
The brand
No tears shed as new moniker heralds a new era
The DTZ brand will survive in just China and the Netherlands, but its demise is no cause for sadness, according to the man most identified with the firm in the UK.
“I can’t be sad,” said head of EMEA John Forrester. “I am elated. This is the deal I have aspired to be a part of for many years.”
Forrester – who joined DTZ in 1988, and has held the roles of head of London markets, head of EMEA occupational and development markets, and head of UK and Ireland – is widely credited with keeping key staff on board during a rollercoaster decade for the business that saw a rescue rights issue, a near takeover by rival BNP Paribas Real Estate and successive sales to Australian engineering business
UGL and a consortium led by TPG.
“The reality is the logo of DTZ is not what clients buy,” said Forrester.
“They have bought the best talent in the best markets across the world. It is the end of one era and the beginning of the next.”
The balance sheet
A debt-laden DTZ? Ratings agency takes a cautious line
Moody’s Investor Service put DTZ’s credit rating on a negative outlook following the announcement of the Cushman & Wakefield takeover.
The negative outlook reflects the agency’s view that the deal could be financed with a significant amount of new borrowing, which will see the company’s debt pile “increasing from already high existing levels”, as well as the risks associated with integrating the two businesses.
Private equity firm TPG, which leads the consortium of owners behind DTZ, typically uses significant leverage to finance acquisitions on behalf of its buyout funds. DTZ chairman Brett White reportedly met banks ahead of bidding for C&W with a view to securing $1.3bn to finance the $2bn deal.
The world’s largest agent, CBRE, has attracted similar concerns from rating agencies in recent years, which issued warnings about the company’s use of debt to finance acquisitions. However, a sizeable restructuring of its finances over the past year has earned CBRE multiple upgrades, with both Moody’s and Standard & Poor’s now assigning it an investment-grade rating.
The competitors
Could the market take a fourth global services giant?
The coming together of DTZ and Cushman & Wakefield must provoke a response from the other major agents hopeful of penetrating the top tier.
However, given the two most likely challengers to the dominance of CBRE and JLL have now come together, is there room for a fourth truly global firm?
Global corporate services is the key battlefield for the big firms and the barriers to entry are high, given the huge costs involved with building a viable platform.
To compete for mandates from the world’s biggest occupiers, new entrants must be able to meet the requirement of corporates to have all their services provided in every region from the same supplier.
Both DTZ and C&W have existing global corporate services platforms, which, although small compared with those of CBRE and JLL, should quickly combine into a viable challenger.
Colliers International is probably now the sole candidate able to penetrate the truly global tier, but its options to grow via acquisition are suddenly looking much more limited.
The staff
Rivals circle UK talent as staff await the synergies
Globally, the synergies for DTZ and Cushman & Wakefield are clear, but in the UK the picture is more complex. And therein lies a significant opportunity for both companies’ competitors.
Rival firms have already begun approaching staff at both businesses, where there are clear overlaps in roles and markets.
This duplication of function will inevitably lead to disappointments for those members of staff who miss out on senior roles at the combined firm or choose not to be part of a merged business.
In key markets such as London, neither company has an obvious advantage. C&W has done much to build its presence in the capital with several high-profile hires in recent years, while DTZ has a loyal team with a strong track record in both leasing and investment.
Colliers International, Savills, JLL, GVA and BNP Paribas Real Estate are all keen to bolster their London teams, with Colliers International particularly focused on hiring in the City, after its talks with GM Real Estate cooled.
