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CBRE Execs: Billions In M&A Pipeline Could Transform Company

Loss of revenue from transactions caused a 70% annual drop in profits for the world's largest commercial real estate firm in Q1, but that isn't stopping it from preparing to snap up other firms.

CBRE plans to spend billions on mergers and acquisitions this year as companies in peril come up for sale, executives said during a first-quarter earnings call Thursday. The firm intends to invest just over $2B on M&A and stock buybacks over the next 12 months, but could go as high as $5.5B while maintaining leverage that is twice the level of its earnings before interest, taxes, depreciation and amortization.

“We believe the current environment is an attractive time to deploy capital,” Chief Financial Officer Emma Giamartino said on the call. “Our M&A pipeline is strong, with multiple attractive opportunities — some large — that could transform CBRE’s existing offerings and drive meaningful shareholder values.”

A CBRE commercial for-sale sign in Ontario

Some of the prospective M&A deals would surpass the $1.3B CBRE spent on purchasing a 60% ownership stake in Turner & Townsend Holdings in 2021, Giamartino said. The company is evaluating opportunities across multiple areas, including facilities management, investment management and valuations advisory.

“We have become a more interesting buyer to a good number of companies than we have been historically,” CEO Bob Sulentic said on the call. “There are companies out there in our sector or directly adjacent to our sector that believe that by becoming part of our business or having financial sponsorship from our business will help them perform better than they could perform on their own.”

CBRE has pivoted the focus of its business since turmoil in the economy prompted a precipitous decline in real estate transactions toward the end of last year. 

Elevated interest rates, inflation and recent bank failures exacerbated that trend through the first few months of this year, Sulentic said, with net revenues from leasing in the Americas region falling by 10% and property sales down 43% year-over-year.

Those losses were offset by what CBRE called “cyclically resilient elements of business” — nontransactional services that Sulentic said produced about $1.5B in profits over the last 12 months. Global Workplace Solutions, a division that provides facilities and project management, continues to be a bright spot for the firm, with net revenue up 11%.

“Our pipeline of new [GWS] business reached a record level at the end of the first quarter as both existing clients and first-generation outsourcers are increasingly focused on cost reduction,” Giamartino said on the call.

CBRE has prioritized M&A in recent years as it looks to weed out competition and expand its scale. In early April, the company tapped senior investment banker Croft Young as its new chief investment officer, a move that further cemented CBRE’s commitment to the space.

The firm isn't alone; M&A activity has been ramping up across the brokerage world, primarily via larger firms purchasing smaller ones to “bolt on” services rather than undertaking megamergers.

The company reduced stock buybacks in the first quarter while it evaluated M&A deals, but if it is unable to close on some of the larger opportunities, it will accelerate share repurchase activity, Giamartino said.

“We are looking for highly accretive deals that can generate returns and shareholder values well above what we could do with buybacks alone,” she said. 

The company, which saw profits decline from $392M to $117M year-over-year in Q1, has pulled back slightly on planned construction starts as it waits for volatility to subside. The firm also saw net revenues decrease by 4.5% year-over-year, and earnings per share fall by 68%.

Despite the loss in quarterly income, Giamartino said CBRE is actively acquiring land so that it is ready to move full-steam-ahead coming out of the downturn.

UPDATE, APRIL 27, 4:18 P.M. CT: This story has been updated to include additional data from the earnings report.