The news that DTZ is merging with rival Cushman & Wakefield is a sign that the race has begun in earnest for a position in the top 3 real estate advisers worldwide. And that DTZ’s fortunes have most definitely reversed.

The news that DTZ is merging with rival Cushman & Wakefield is a sign that the race has begun in earnest for a position in the top 3 real estate advisers worldwide. And that DTZ’s fortunes have most definitely reversed.

Just four years ago, the company was forced into the arms of Australian engineering conglomerate UGL after being rejected by a French duo comprising the company’s then owner SGP and BNP Paribas Real Estate. The Australian owners preened the former wallflower, adding a large facility management business with €1 bn in turnover and ‘the speed-to-market of a private company’, to quote DTZ’s former CEO EMEA John Forrester.

Its takeover last year by a private equity consortium backed by Texas-based TPG Capital, PAG Asia Capital and Ontario Teachers’ Pension Plan heralded its return to the dance floor. And when DTZ announced earlier this year that it is now operating with Cassidy Turley as a single global firm following the acquisition of the US broker by the consortium, it was clear DTZ was ready to rock and roll.

Indeed, its new owners have now put the firm centre stage. After forking out $1.2 bn for DTZ last June, the trio subsequently dug even deeper into their pockets to cough up a sum believed to be in the vicinity of $2 bn to buy Cushman & Wakefield from Italian majority owner Exor. For Exor, the investment company controlled by the Agnelli family, the deal gives it additional firepower for any future acquisitions as it seeks to diversify a portfolio which includes controlling stakes in carmaker Fiat Chrysler and tractor maker CNH Industrial. The sale of C&W to the TPG-led group is set to generate net proceeds of around $1.28 bn, representing a capital gain for Exor of approximately $722 mln.

Despite protestations to the contrary from Cushman & Wakefield’s chairman and CEO Carlo Barel di Sant'Albano, the company always seemed to be the odd one out in the Exor stable. DTZ’s backers, on the other hand, have been steadily expanding their footprint in the global real estate arena in the last few years. The lead player in the consortium is US-based global private equity firm TPG Capital which has $67 bn (€60 bn) of assets under management across a wide range of sectors and strategies. Since the credit crisis TPG, led by Texan billionaire David Bonderman, has invested some €2.9 bn in direct real estate.

The Ontario Teachers' Pension Plan (OTPP) claims to be the largest single-profession pension plan in Canada. Operating on behalf of 310,000 active and retired teachers, it has some CA$154 bn of assets under management. OTPP is no stranger to property investment and development, which it delegates to Cadillac Fairview, a wholly owned subsidiary which manages a $26 bn portfolio of standing assets, developments and investments in property companies.

The third player in the trio, PAG Asia Capital (PAG), is one of the largest Asian-based alternative investment managers, managing some $12 bn in capital across the region in three core strategies: private equity, real estate and absolute return. Besides its private equity dealings, PAG has a solid track record in real estate in Asia. Since the company was founded in 2002 it has completed 500 real estate-related transactions with a total investment volume in excess of $20 bn. Buying into DTZ represented its debut on the global real estate stage.

New breed of real estate animal
Together the trio belong to a new breed of real estate animal that has emerged since the crisis as like-minded investors join forces to form their own club deals and platforms. But the Cushman & Wakefield takeover is undoubtedly one of the most audacious moves undertaken in this cycle. The merger with DTZ creates a new powerhouse with $5.5 bn (€4.9 bn) in revenues and 43,000 employees who will manage 371 million m2 globally on behalf of institutional, corporate and private clients. In other words, the new combine is a challenger for the top-2 position worldwide. At present, JLL leads in terms of global revenues which totalled €5.4 bn in 2014 and a workforce of 53,000, but the gap is closing. Globally, CBRE remains - by a significant stretch - the market leader with revenues of $9 bn last year.

The merger between Cushman & Wakefield and DTZ has not only shaken up the ranking, it '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.’

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.

Another player that has been jockeying for a position in the top-3 worldwide is Colliers International. Earlier this year its Toronto-based parent FirstService Corporation unveiled plans to list Colliers International as an independent, publicly traded unit. Colliers International has seriously tried to expand its presence in the UK and the plan to spin it off as an independent, publicly traded unit would give it more financial room for manoeuvre to take advantage of industry consolidation opportunities.

But reading between the lines, the company may be modifying its ambitions. There is an advantage to focusing on what you do best rather than trying to be a global behemoth, Tony Horrell, CEO of Colliers International in London, told PropertyEU. ‘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.’

Without a doubt, players will be watching the TPG consortium which has indicated it is open to further acquisitions for its platform. For their part, DTZ and Cushman & Wakefield have already come full circle: the pair were apparently mulling a merger almost a decade ago, according to one analyst who asked not to be identified. Will the marriage work this time round? It could be said that the initial signs augur well. DTZ may have been the challenger thanks to its heavyweight backers, but it has wisely not insisted on retaining its brand in the new combine which will be called Cushman & Wakefield.

In that sense, it is Cushman & Wakefield rather than DTZ that is now in the driver’s seat.

Judi Seebus
Editor in chief