CBRE’s $1.47 bn (€1.4 bn) acquisition of Johnson Controls’ Global WorkPlace Solutions is the latest example of the broker’s drive to boost recurring sources of fee revenue.

CBRE’s $1.47 bn (€1.4 bn) acquisition of Johnson Controls’ Global WorkPlace Solutions is the latest example of the broker’s drive to boost recurring sources of fee revenue.

Commercial property agents are back in acquisition mode now that a surge in real estate transactions is replenishing their capital positions. Following the purchase of Cassidy Turley by DTZ and the planned disposal of Colliers, US-based CBRE has signed a definitive agreement to acquire Johnson Controls’ Global Workplace Solutions (GWS) business for $1.47 bn in cash. The net purchase price (net of tax benefits) reflects a multiple of approximately 8 times GWS's 2014 EBITDA, considering run rate synergies.

Rather than taking over a rival agent, CBRE is expanding its services for big corporates in a move aimed at boosting its income sources while stabilising its revenues. ‘The facility management business typically works through five- and seven-year contracts. This gives us stability in times when the real estate cycle is down. Furthermore, strategically it is a very important business for us and for our clients, which are in need of a global coverage,’ commented CBRE’s CEO of Global Corporate Services (GCS) Bill Concannon.

Through the deal, the group aims to retain these clients throughout the entire life of the building, from handling construction to managing it and eventually being responsible for the sale or financing of the asset, he added.

Blue-chip clients
Johnson Controls announced plans to part with its Global Workplace Solutions business last September in order to focus on its core manufacturing business. ‘This combination creates a fully integrated provider of services. There is really nothing else like this in the industry,’ said John Murphy, president of GWS who will join CBRE as global chief operating officer for GCS.

The deal, which is expected to close in the autumn, will increase the amount of real estate and corporate facilities managed by CBRE to 5 billion sq ft (464 million m2) from 3.8 billion sq ft at present. GSW manages a total of 1.2 billion square feet (111 million m2), of which 45% is in the EMEA region, 30% in the Americas and 25% in Asia Pacific. The Johnson Controls unit generated $3.4 bn in revenue last year and posted $95 mln in operating profit.

GWS serves a blue-chip roster of global corporations, particularly in the industrial/manufacturing, life sciences, and technology sectors, which complements CBRE's traditional strength in financial services, healthcare and technology services, Concannon noted. ‘The GWS team is a great fit for our business,’ he said. The two organisations are also complementary in terms of ‘culture, values, and a client-centered ethos’, added Murphy.

Upon closing, GWS will operate as part of CBRE’s Global Corporate Services business, which has increased revenue at a double-digit compound annual growth rate over the last decade, as more major corporations and other institutions seek to outsource their real estate services. As part of the deal, CBRE and Johnson Controls have also announced a 10-year strategic relationship. CBRE will provide Johnson Controls with a full suite of integrated corporate real estate services on more than 50 million sq ft and Johnson Controls will offer a factory-direct relationship on heating, ventilation, and air conditioning equipment, building automation systems and related services to CBRE for its managed properties.

Further expansion ahead
‘The Johnson Controls unit is a business we’ve long admired,’ CBRE’s CEO Bob Sulentic said during a conference call. Commenting on the rationale for the acquisition, he pointed out that the deal ‘is consistent with the group’s strategy of having a full suite of integrated services, growing its relationships with the world's leading occupiers, and maintaining a business balanced across business lines’.
Sulentic: ‘With GWS, we further our ability to create advantages for occupier clients by aligning every aspect of how they lease, own, use and operate real estate to enhance their competitive position.’

The acquisition is one of the largest to be carried out by CBRE in the past years. In 2006, the group spent $1.9 bn on the purchase of Trammell Crow in the US in a deal which allowed it to significantly expand its integrated account management and outsourcing solutions.

It won’t nearly be the last, according to Murphy. ‘We envision that there will be some additional moves to strengthen our offering in the future and after closing we will certainly be looking at further opportunities,’ he said. Just a few weeks after the GWS acquisition, CBRE announced the takeover of Environmental Systems (ESI), a systems integrator and provider of energy management services in the US.
‘We already are the largest in the world at what we do in facility management. But we still have large headroom for growth in the future,’ added Concannon.