CBRE Group Inc. (CBG) disclosed the penning of a deal to acquire UK-based commercial building technical engineering services provider — Norland Managed Services Ltd. — in a deal worth up to £300 million (approximately $480 million). The move comes as part of CBRE’s efforts to enhance it capabilities and expand its corporate outsourcing platform in Europe.
Founded in London in 1984, Norland has earned its repute for its capabilities in managing critical environment facilities, such as data centers and trading floors. It offers its building technical engineering services not only to commercial real estate owners and occupiers in the UK and Ireland, but has a growing clientele in the U.S. and Singapore. It has 4,000 employees in 14 offices and offers its services to over 300 clients.
Notably, some of CBRE-managed accounts such as Bank of America Merrill Lynch of Bank of America Corporation (BAC) and State Street Corporation (STT) receive services from Norland.
Deal Details
To acquire Norland, CBRE will pay £250 million (around $400 million) plus up to £50 million ($80 million) in deferred contingent consideration and a payment for excess working capital and related items. The purchase price is mainly to be paid in cash apart from £5.6 million ($9 million), which needs to be paid in CBRE common stock to Norland senior management. The deal is anticipated to close before the end of this year.
Post the buyout, the existing operations of Norland will be renamed as CBRE/Norland and the current CEO of Norland – Ian Entwisle – will lead CBRE/Norland operations as its CEO.
CBRE plans to fund the acquisition with cash in hand and borrowings under its existing revolving credit facility. Notably, it had over $500 million of cash on its balance sheet and around $1.1 billion available on its revolving credit facility while exiting the third quarter 2013.
A Strategic Fit
We believe this acquisition is a strategic fit for CBRE, which currently has a Zacks Rank #4 (Sell) following lower-than-expected results in the third quarter. Also, this gives the company the scope to enhance its business in the EMEA region. The company also expects it to be moderately accretive to its earnings immediately.
Revenue growth at Norland at a double-digit rate every year over the past ten years and over a 20% compound annual growth rate in revenue and profit over this period boost our confidence in this strategic buyout.
Nevertheless, one can also look at another stock in the same industry, E-House (China) Holdings Ltd (EJ), which is performing well and carries a Zacks Rank #1 (Strong Buy).
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