On The Block: U.K. Property’s £9B Corporate M&A Bonanza
Large-scale corporate merger and acquisition activity is very much in vogue in the U.K., with four major companies with a value of £9B or more up for sale or looking for fresh capital.
Here is a cut-out-and-keep guide to some of the major companies on the block.
Network Rail arches portfolio
Potential value: £1.2B
Sector: Railway arches let to small and medium-sized enterprises
The business: Network Rail is looking to raise more than £1B by selling its portfolio of more than 5,500 railway arches let out to tenants ranging from cafés to mechanics to offices and everything in between. The portfolio generates about £80M in rent a year with average rents around £8-£9/SF, according to EG. Most of the portfolio is in London and the South East, and the deal will include the 80-strong management team.
Bidders: The process is about to reach the third round of bidding. While initially it is thought a private equity firm might buy the portfolio, in order to maximise the value a long-term strategy is required. Blackstone for example is bidding, but through its core-plus vehicle, which does not have a fixed lifespan. Other bidders include Terra Firma and a joint venture between Goldman Sachs and the Wellcome Trust.
Potential value: £3.3B
Sector: Residential and retail
The business: CapCo is a listed company with a £2.6B market cap, but it thinks it is worth more than the value the public market attributes to it. As such, it has announced plans to explore a demerger into two companies; its residential business, undertaking a massive 7,500-unit development at Earls Court; and a retail business which owns the iconic Covent Garden area of London. It said the first business is valued at £800M and the second at £2.5B. “The current structure does not adequately showcase the underlying value of the two businesses and the two proposed entities could appeal to different investor bases given they have different risk/reward profiles and different income/cashflow profiles,” Green Street analysts said.
Bidders: The plan outlined by CapCo would be to list the two businesses separately, but inevitably the demerger has drawn speculation about bids for the individual units. Berkeley has been linked to the residential scheme, and it is not a stretch of the imagination that one of the large Asian firms buying London resi at the moment like R&F would bid. For Covent Garden, the trophy nature of the asset and possibility for asset management would appeal to a sovereign fund like ADIA, or Oxford Properties through its luxury retail joint venture with Richemont.
Potential value: £2.5B+
Sector: Build to rent
The business: Private equity firm Lone Star bought Quintain for £1B in 2015, and is now looking to sell it for £2.5B-£3B. The uplift in value is down to the fact that Lone Star has provided the funds to allow Quintain to start building out its 5,000-unit build-to-rent portfolio at Wembley Park. It also owns another 2,500 units at the scheme that could be built for sale or for rent, and it recently made a move into Ireland.
Bidders: Last month Sky News reported that Terra Firma was considering a bid for Quintain, and could combine the company with Annington, the business it owns which rents houses back to the Ministry of Defence. Global sovereign wealth funds that have invested heavily in rented residential include Ivanhoé Cambridge, which could team up with Blackstone; and APG, Qatari Diar and Oxford Properties, which combined own the U.K.’s largest rented residential platform, Get Living.
Potential value: £1.5B+
Sector: London offices and residential
The business: Almacantar has a portfolio of London office and residential assets, some completed and some under construction, totalling 1.5M SF, including Centre Point and One and Two Southbank Place. It wants to grow the value of the business from £2B to £4B but needs more capital, so the owners, who include Agnelli-owned insurer PartnerRe and the Wertheimer family, owners of Chanel, brought in Rothschild to explore a sale or recapitalisation at a £2B valuation.
Bidders: Since the sale was announced Almacantar has already sold CAA House to Seaforth Land for £165M and it is selling 125 Shaftesbury Ave. for close to £300M, reducing the size of any overall sale. The portfolio is likely to appeal to global investors looking for assets that come with a well-regarded management team.