A company’s stock often takes a dip when it makes an acquisition. But downtown L.A. real estate giant CBRE Group Inc.’s most recent buy resulted in a boost for its stockholders.
On March 31, the company announced that it had agreed to acquire Global WorkPlace Solutions, a division of Milwaukee diversified conglomerate Johnson Controls Inc. for $1.48 billion in cash and debt. CBRE’s investors enthusiastically cheered the deal.
Shares of the company soared 9 percent during the week ended April 1, closing at $38.83. CBRE, which hit a new 52-week high, was one of the biggest gainers on the LABJ Stock Index. (See Page 32.)
Global WorkPlace Solutions is an integrated facilities management company that generated about $3.4 billion in revenue last year. It provides services such as facilities and engineering management to large corporations, which typically sign up for five-year contracts, according to a press release announcing the deal. GWS also has a specialty in providing custom engineering for niche real estate users such as laboratories and data centers.
After the deal is completed, GWS President John Murphy will join CBRE as chief operating officer of the firm’s global corporate services business, into which GWS will be folded.
Bill Concannon, chief executive of CBRE’s global corporate services business, said that when Johnson first enlisted investment bankers and put GWS on the market in September, he was immediately interested.
“We love the deal because it’s great for our customers and it plays to our strategy perfectly,” he said. “Frankly, we’ve admired this business for a long time.”
Concannon said the two businesses, despite both serving large corporate customers, are very complementary.
“Roughly 80 percent of GWS customers are companies that are not being served by CBRE on a contractual basis,” he said. “There’s not a lot of client overlap.”
As part of the deal, CBRE and Johnson Controls also announced a 10-year strategic relationship, in which CBRE will manage Johnson Controls’ real estate portfolio and Johnson Controls will provide CBRE with in-house engineering technology.
Brandon Dobell, who covers CBRE for Chicago investment bank William Blair & Co., wasn’t surprised by the market’s positive response to the deal, particularly given the predictable, contract-based revenue generated by GWS, compared with the spikier way real estate brokerages usually make money.
“It’s a good financial transaction,” he said. “They’re using relatively low-cost debt to acquire an asset they can make more profitable. And as importantly, it makes their business more recurring and gives them opportunities to cross-sell transactional services.”
