Those who suffered through, sold during and survived the great financial crisis know well that tough times bring out the dealmakers. The events of 2020 have been no exception.
“Each time you have a crisis, you have also a consolidation,” Méka Brunel, chief executive of Gecina, told EG as she took the chair at the European Public Real Estate Association. “The difference between today and the past is that you cannot only be a vulture-kind of fund. You need to understand the underlying asset and you need to be long term.”
Plenty of real estate companies were seen in play over course of the year, including Hammerson, of which Brunel is a non-executive director. As South Africa’s Lighthouse Capital continued to build a stake in the London-listed landlord, many saw it as a potential suitor. Brunel, for her part, described Lighthouse as a “long-term” backer, adding: “They understand what the [Hammerson] business is about.”
Given the volatility seen in equity markets during the course of the Covid-19 pandemic and the yawning gaps between many companies’ share prices and their net asset values, it is small wonder that listed real estate firms have become an attractive target – for financial buyers as well as their own peers.
Capital & Counties’ purchase of more than a quarter of fellow West End landlord Shaftesbury was described by Capco at the time as an “attractive investment and entry price relative to historical levels” and led to speculation that a full-blown merger may eventually emerge.
Activist investors have pushed for change. Peter Gyllenhammar’s eponymous Stockholm-based investment firm built a stake in Palace Capital, telling EG that the company’s steep discount to NAV and “wide-open ownership structure” were likely to make it a takeover target: “They need to bridge the gap by taking action or someone will certainly bid for the company.” Gyllenhammar has encouraged Palace to launch a share buyback, something it has yet to do.
Looming take-privates include Wellcome Trust’s £506m move for Urban&Civic, expected to close early next year.
Urban&Civic founder Nigel Hugill told EG that the deal represents the type of “patient, institutional capital” that the company needs but cannot find easily on the public markets.
“We have never shied away from the fact that our projects are long-dated and that the duration of them, once established, is really considerable,” he said. “The returns that they generate for the owners of the equity are good. But there’s a fair amount of work involved in getting to that first spot.”
Lone Star’s upped £647m acquisition of McCarthy & Stone was given shareholder approval earlier in December. The company has said it expects to face a “difficult” market next year, and that the offer from Lone Star reflected “both the future opportunities and risks facing the business”.
And then comes Countrywide. The past year saw a seemingly non-stop flow of dealmaking developments at the estate agency group.
A deal struck to sell its Lambert Smith Hampton division fell apart early in the year, with an ongoing legal case over its failure. Also hitting the buffers was a planned tie-up with rival LSL. The company eventually had two proposals vying for shareholder support. One would see the group taken private by rival Connells. The other would see it recapitalised by private equity house Alchemy Partners, a proposal that failed to win over shareholders. Ultimately, an improved £223m offer from Connells has been recommended to shareholders as the year draws to a close.
There’s no likely slowdown in activity on the horizon. Kieran Lee, an equity analyst at Berenberg, said companies focused on the London office sector may prove particularly appealing in the next wave of transactions.
“There is a huge divergence between direct and listed markets – that is obviously an opportunity,” he told EG earlier this year. “The sector is very attractive… I can see why there is renewed M&A attraction. You’ve got $2tn of potential firepower sitting in private equity and that needs to be deployed.”
Who will attract a bid next? Berenberg’s Lee has flagged Helical and Great Portland Estates as likely targets – the latter has seen private equity house KKR take a notable stake. Expect more high-profile changes in the UK’s listed real estate market next year.
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