Culture Issues Loom in CBRE's $1.3B Buy of Turner & Townsend Stake
Set to close in the fourth quarter, Dallas real estate giant CBRE Group Inc.'s $1.3-billion proposed cash buy of a 60% majority stake in U.K.-based program and cost manager Turner & Townsend Holdings Ltd. is creating a stir on both sides of the Atlantic.
Seeking to expand fee-based client services in project management, infrastructure development and energy transformation amid the uncertain real estate market, CBRE announced the deal on July 30, which has been in motion since late last year. At closing, T&T’s 106 partners would own the remaining 40% share. The firm was valued at about $2.2 billion.
With pandemic impacts, CBRE reported flat 2020 revenue of $23.8 billion and an earnings drop from 2019. But first-quarter 2021 revenue rose 1% from its level a year ago, it said.
Leeds, England-based T&T also posted a revenue decline for its year ended April 30, reporting $923 million, with the firm citing a major falloff in its airport project management activity because of the pandemic. T&T operates in 45 countries with more than 100 offices globally.
CBRE ranks at No. 5 on ENR’s Top PM/CM-for-fee list, with $1.675 billion in 2020 global revenue reported. T&T ranks at No. 9, with $506.7 million reported.
CBRE President and CEO Bob Sulentic termed the deal “transformational” for its PM business, pushed by rising public and private infrastructure investment “and the drive to a low-carbon global economy.” He added that “Turner & Townsend is by far the best firm to help us realize our ambitions for this business. It is an exceptionally well-run company with a first-rate brand, enviable client base and expertise that complements our capabilities.”
The stake offers CBRE a larger role "in a segment with stable long-term revenue streams and cash flows through all economic cycles," Mick Morrissey, partner at the U.S. mergers and acquisitions consultant Morrissey-Goodale, told ENR.
CBRE last month also created a special corporate entity to merge with solar-energy builder Altus Power, in a transaction that valued that firm at $1.5 billion.
T&T will gain from a larger Americas market and “will continue to offer independent advice, solutions and program-level thinking,” said CEO Vincent Clancy. The firm's management and brand won’t currently change, he added.
Clancy said that the the company, founded in 1946, had in past years been an acquisition target of rival firms and private equity buyers. It had to cancel a public offering of stock due to its timing during the 2007-2008 global financial crunch. CBRE, which went public in 2004, is traded on the New York Stock Exchange.
Read a recent in-depth ENR profile of Turner &Townsend growth and strategy here.
Industry observers in the UK praised the "nice premium" paid by CBRE, according to a comment in Building, a UK-based industry publication. Another claimed that currency differences between the dollar and pound "makes the UK relatively cheap at the moment."
But industry bbservers see culture challenges in T&T’s noted advisory independence as the 7,000-person firm integrates into CBRE’s empire of 100,000 employees, and risk of key staff departures, as the smaller company changes from "a local firm to a global megabeast," a U.K. executive told Building.
“This is a very real risk that management traded off against the benefits of being part of CBRE,” a U.S. industry executive told ENR. “Can the branding work and will it resonate with both sets of customers?”
The deal comes as U.S.-based consultant giant Tetra Tech also announced last month its purchase of Hoare Lea, a 900-person British consulting engineer in the buildings sector, for an undisclosed price. The Pasadena firm had bought England-based consultant WYG, with 1,600 staff, in a $55-million cash deal in 2019.
The Hoare Lea purchase "further advances Tetra Tech’s industry-leading sustainable building solutions for our commercial and government clients,” Tetra Tech CEO Dan Batrack, said in a statement.
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