GLOBAL – UGL, the Sydney-listed engineering firm that acquired DTZ from administrators 15 months ago, has effectively put the property business up for sale again, writes Shayla Walmsley.

The suggestion that it may spin off DTZ came with the announcement last week of a restructuring review, scheduled for completion in August. The alternative would be for UGL to maintain its current corporate structure.

"Announcing that you are conducting a review is effectively announcing that the business is for sale and it could flush out a buyer for parts of the business," Heath Andrews, a research analyst at RBC Capital Markets, told IP Real Estate, adding: "It is unlikely the whole business would be taken over."

In a letter to shareholders last week, UGL chairman Trevor Rowe and CEO Richard Leupen said DTZ had "delivered on its turnaround" with excellent growth prospects for the property business to offset performance in the slowing Australian market. The property business now makes up around 50% of UGL’s earnings.

The announcement triggered speculation that the demerged DTZ could prove an acquisition target for larger global peers. CBRE and Jones Lang LaSalle – both mooted as potential buyers – declined to go on the record this week. But a source at one firm touted as a potential bidder expressed concerns over whether the business would be an appropriate "fit".

Despite estimates of DTZ’s enterprise value as high as AUD$1bn (€813m), Andrews pointed to the firm’s continued exposure to the struggling UK and Irish markets.

"Conditions in the UK and Ireland are likely to have deteriorated [since the acquisition]. It is hard to imagine the market paying the same multiple for this business as some of the more stable peers," he said.

Andrews said a demerger would benefit neither company. UGL is already trading at a premium, and "splitting a company mostly makes sense when it is on low multiples", he said. "Until cash-flow conversion improves at UGL, the share price is likely to remain under pressure."