Has CRE Merger Mania Continued in 2016?
When it comes to M&A in the commercial property services industry, 2015 is a tough act to follow.
Last year’s splashy deals included DTZ’s $2 billion merger with Cushman & Wakefield (and less than a year earlier, DTZ acquired Cassidy Turley in a $1.2 billion transaction). Add to that CBRE Group’s $1.475 billion purchase of Johnson Control’s facilities management business Global Workplace Solutions.
And don’t forget the slew of smaller, “one-off” local acquisitions and mergers of mid-market CRE firms. CBRE and JLL snatched up several smaller brokerages and niche businesses — “a sign of a thriving market and a shift in demand for firms with greater global clout,” the Wall Street Journal reported.
But what about 2016?
The volume of M&A activity has dropped this year. According to Matt Porzio, vice president of M&A strategy at Intralinks, global real estate M&A volume was down 7 percent and value was down more than 20 percent on a Q2 quarterly year-over-year basis.
“This was more pronounced when looking at U.S. targets, with announced volume down 28 percent and value down 23 percent,” Porzio told VTS in an email. “Based on this assessment, Intralinks is predicting that in fourth-quarter 2016, announced real estate M&A deals will be down in the high-double digits, on a quarterly year-over-year basis.”
A slowdown in economic growth, the possibility of interest rate hikes and uncertainty over the outcome of the U.S. presidential election could “cause dealmakers to pause for breath,” Intralinks reports of overall M&A activity.
Despite lack of large deals, smaller ‘tuck-ins’ continue
“The big deals have slowed, although 2015 was a bit of anomaly with CB’s big deal, the Cushman/DTZ/Cassidy Turley deals; there was a lot going on last year,” Brandon Dobell,an analyst with William Blair & Co., told VTS. “So no matter what was going to happen, it’s going to be difficult to keep up with last year’s pace of large deals.
“At the same time, we’ve seen CBRE, Colliers, and JLL continue to make a pretty good amount of small deals,” he added. “These are maybe a team of eight people, maybe it’s 30 people. Maybe it’s a $10 million deal or a $20 million deal—what everybody calls “tuck-ins” have continued at a pretty healthy pace.”
Much of this activity is driven by mid-size firms, which are struggling. They’re not big enough to compete with the global powerhouses yet they’re not niche, boutique players, which can just focus on doing one thing or one geography well.
“The middle of the market has continued lose people, lose market share because they don’t do well competing against either of those thesis,” Dobell said.
Who is driving the activity?
JLL is one of the most active this year. In one June week, Bisnow reported that JLL announced acquisitions of San Antonio’s Travis Commercial, Dallas-based workplace tech firm BRG, NYC consulting company Merritt & Harris, and UK-based Integral, a facilities management platform.
CBRE also completed several fill-in acquisitions this year, including an affiliate company in Norway called Atrium AS. It agreed to acquire a minority interest in Malaysia real estate services provider C H Williams Talhar & Wong. The firm also acquired London-based retail property advisor Michael Horwitz & Co.
“Both [CBRE and JLL] have been quite upfront about these tuck-in acquisitions being a use of capital going forward,” Dobell said. They feel like they have holes in their market share in particular geographies or in product offerings in a particular geography—and this is the best way to go plug those holes because they already have a footprint in a country or a city.”
Meanwhile, Cushman & Wakefield slowed its M&A after last year’s merger with DTZ. Reports say the company is poised to go public to better compete with JLL and CBRE. However, Dobell says some uncertainty in the market may cause them to pause.
“Like a lot of companies, they’re waiting and watching the market and saying, ‘Is this the best time? How does Brexit impact people’s thought processes? How do valuations look, because the stocks that they would be compared to—CBRE, JLL and Colliers—are not trading at valuations as good as they were a year ago,’” Dobell said.
While 2016 may be slower than last year, it certainly isn't that slow.