Merger and acquisition (M&A) activity in the European listed property sector is undergoing something of a revival as companies look to expand their businesses on the back of an improving economic outlook.

Merger and acquisition (M&A) activity in the European listed property sector is undergoing something of a revival as companies look to expand their businesses on the back of an improving economic outlook.

This summer saw listed French retail specialist Klépierre and its Dutch peer Corio unveils plans for a €21 bn merger which will create the second largest listed retail company in Europe. Following the tie-up, Unibail-Rodamco will remain market leader with almost €27 bn in shopping centre assets.

COMMENT
Under the terms of the merger deal, Corio shareholders will receive 1.14 Klépierre ordinary shares for each Corio ordinary share in a deal valuing Corio at €7.2 bn including debt. The exchange ratio represents a 15.6% premium on the closing price of €35.8 per Corio share on 28 July 2014.

According to Peter Papadakos, analyst at Green Street Advisors, the pricing for Corio is 'as high as Klépierre could have afforded without destroying shareholder value'. Papadakos reckons that the deal will generate some 'very credible' synergies in the next three years (Green Street estimates synergies at €45 mln).

But the premium that Klépierre is paying will offset pretty much all of the forecasted synergies, he added. The transaction is forecast to result in a 2% dilution of Klépierre's proforma Net Asset Value.

Klépierre will likely retain only the top 25 or so shopping centres held by Corio and divest the remaining 30 over time, Green Street Advisors' Papadakos noted. 'On the one hand, the quality of Klépierre's portfolio will take a step back [with this deal]. On the other hand, with Simon Property at the steering wheel, Klépierre may accelerate value creation in the Corio portfolio, which has been undermanaged for the past decade. At least the assets offer plenty of low hanging fruits,' he added.

While the Klépierre-Corio alliance grabbed the headlines, it is by no means the only M&A deal in the works. France boasts one of the most mature listed property industries and M&A activity in its listed property sector has been particularly prolific over the summer.

In early June, French REIT Eurosic agreed to acquire an interest of nearly 89% in peer SIIC de Paris from shareholders Société Fonciere Lyonnaise and Realia, in a deal which gives it full control of the €1 bn business park landlord. In total, Eurosic is forking out €870 mln for the combined 89% shareholding in SIIC de Paris, and it plans to buy out the remaining 11% stake in a second stage. The acquisition will enable Eurosic to double its portfolio to almost €3 bn from €1.4 bn at present.

Similarly, Société de la Tour Eiffel (STE) is being taken over by French mutual insurer SMABTP after a year-long battle for control with an existing shareholder, French-Vietnamese investor Chuc Hoang. SMABTP, the leading insurance group in France for the construction and public works sector, already owns 3 million shares or nearly 50% of STE. It plans to strengthen STE's capital base and allow it to double its portfolio over the next three to five years.

Meanwhile Gecina, a €11 bn developer-investor, has lost its major shareholder, Spanish property group Metrovacesa, and acquired Norway's Norges Bank, France’s Credit Agricole Assurances, US investor Blackstone and Canada's Ivanhoe Cambridge as new cornerstone investors in a deal valued at €1.5 bn.

Elsewhere in Europe, activity has been more muted but still stronger than in the past few years. In Spain, listed property firm Colonial has mounted a €650 mln bid for peer company Realia while in the UK, private equity giant Blackstone agreed in July to take over AIM-listed Max Property Group. The deal values the UK real estate company at £448 mln (€567 mln), reflecting a 22% premium to the group's net asset value per end-March 2014. Under the deal, Blackstone will pay £414 mln in cash to acquire MPG Opco, which owns the entire property business of the group.

POSSIBLE IPOS
Blackstone’s European logistics property arm, Logicor is, meanwhile, considering the possibility of a listing to take advantage of strong demand for listed companies in the sector, according to Logicor’s CEO Mo Barzegar. Listing would be one very viable option somewhere down the line, he told PropertyEU.

The IPO route has also become a popular option for Spanish asset managers to attract international capital on the back of renewed interest in the local property market. So far this year, Spain’s property industry has seen four listings on the Madrid stock exchange, raising a combined €2.5 bn of equity (Hispania, Lar, Merlin and Axia). Many more will follow suit in the coming months: PropertyEU has identified at least three more in the works: Norfin, Urbas and Quabit.

Europe's listed sector remains a dwarf compared to its non-listed counterpart, but the climate for more activity in this market certainly appears to be improving.