The merger between real estate rivals Cushman & Wakefield and DTZ 'paves the way for further consolidation in Europe’, according to Joe Valente, head of research and strategy for the European real estate group at JP Morgan.

The merger between real estate rivals Cushman & Wakefield and DTZ 'paves the way for further consolidation in Europe’, according to Joe Valente, head of research and strategy for the European real estate group at JP Morgan.

‘This deal will have all sorts of ramifications,’ Valente told PropertyEU. ‘It’s inevitable that we will see further mergers going forward. I wouldn’t be surprised if players such as Savills and JLL look at something similar – otherwise, they could get squeezed in the middle.’

DTZ’s parent company TPG Capital will pay $2 bn (€1.8 bn) to buy C&W from majority owner Exor SpA, including the assumption of debt. For majority-stake holder Exor, the Italian investment company controlled by the Agnelli family, the sale of C&W to the TPG-led group will generate net proceeds of around $1.28 bn, representing a capital gain for Exor of approximately $722 mln. The sale is expected to close in the fourth quarter.

‘This transaction builds upon the considerable momentum we’ve achieved over the past 18 months and positions Cushman & Wakefield to deliver incremental value to clients worldwide from a broadened and strengthened global service platform,’ Edward C. Forst, president and CEO of C&W, said in a statement on Monday.

It will be interesting to see what happens to the mid-tier players such as Savills and Knight Frank in the wake of this merger, according to Rob Wilkinson, CEO of AEW Europe. ‘It’s absolutely clear that the creation of another large player today accentuates the need for smaller players to define what they want to be,’ he said. ‘They could decide to reinvent themselves as niche players, which is basically what happened to some investment banks in the wake of the financial crisis. Alternatively, they may decide that they need to merge with a similar-sized competitor,’ he added.

There is also an advantage to focusing on what you do best rather than trying to be a global behemoth, according to Tony Horrell, CEO of Colliers in London. ‘At Colliers, we’re a global business with a small heart…we’ve always said that we don’t want to grow just for the sake of it. We recruit a lot of people who are attracted to Colliers because of its existing size. There will always be a place for niche players in the property industry.’

Interestingly, DTZ and Cushman & Wakefield were apparently mulling a merger almost a decade ago, according to one analyst who asked not to be identified, citing strong synergies between the two groups. C&W and DTZ could not be reached for comment.

Geographic synergies
In addition, both firms can benefit from each other’s geographical strengths, said Valente. ‘DTZ has a lot more exposure in Asia, particularly in China, whereas Cushman has a stronger presence in the US.’

Moreover DTZ has a stronger presence in Scandinavia, whereas C&W has a more developed presence in Southern Europe. Combined, they will have an enviable global presence.

The new company will operate under the C&W brand and have revenues exceeding $5.5 bn, over 43,000 employees and will manage more than 4 billion square feet (371 million m2) globally on behalf of institutional, corporate and private clients, the firm said.

However, it will be interesting to see what happens to the mid-tier players such as Savills and Knight Frank in the wake of this merger, according to Rob Wilkinson, CEO of AEW Europe. ‘It’s absolutely clear that the creation of another large player today accentuates the need for smaller players to define what they want to be,’ he said. ‘They could decide to reinvent themselves as niche players, which is basically what happened to some investment banks in the wake of the financial crisis. Alternatively, they may decide that they need to merge with a similar-sized competitor,’ he added.

Consolidation has been rife in the real estate sector in recent months as companies with established synergies wise up to the potential of joining forces in order to increase their stake in the global real estate pie. And it’s not just in the real estate sector. As Bernhard Scholz, member of the management board at German lender pbb Pfandbriefbank put it recently: ‘Consolidation is flavour of the month with economists globally.’

Recent moves include DTZ’s merger in January with rival Cassidy Turley in the US, backed by a consortium comprising global private investment firm TPG Capital, Asian alternative investment management firm PAG Asia Capital and the Ontario Teachers’ Pension Plan. The merger created a global top-three CRE services company with $2.9 bn in annual revenues. DTZ was sold to the consortium in June last year for £663 mln by Australian support services company UGL, which had owned DTZ since 2011.

C&W announced in February that it was up for sale. At the time, analysts predicted that it would likely sell for around $2 bn, largely on the back of a raft of mergers and acquisitions in the real estate sector in recent years that has seen prices for some firms rocket to more than 10 times EBITDA.

People moves
Upon completion of the merger, Brett White, former CEO of CBRE, will assume the role of chairman and CEO of the combined company. Carlo Barel di Sant’Albano, currently international CEO of Cushman & Wakefield and CEO of EMEA, will take a senior global leadership role. John Santora, current CEO of North America at Cushman & Wakefield, will become the COO and CIO. Tod Lickerman, current Global CEO of DTZ will assume the role of president of the global company.

Commercial real estate globally has rebounded strongly in the past two years, fuelled by the low-interest rate environment, coupled with low bond yields, thereby driving more investors into real estate in search of better returns. The increase in global deal volumes has therefore helped to bolster the share price of advisory firms.

CBRE shares were trading at $37.55 on Monday, close to their 52-week peak of $39.77. JLL was trading at $165.10, down just slightly from its 52-week high of $174.83.

Although C&W is the largest privately-owned real estate agency globally, it was the third largest overall, behind CBRE and JLL - until today’s merger.