London-based Patron Capital and insurer Legal & General have made a significant investment in the UK home buiding market by acquiring a majority stake in upmarket residential company CALA Group for £210 million (€244 million; $317 million).
Under the terms of the deal, Patron and L&G are each taking a 46.5 percent shareholding while CALA’s senior management team is retaining a 7 percent stake. Patron and L&G are acquiring their stake for £140 million in equity and £70 million of debt. Meanwhile, Lloyds Banking Group will maintain a £100 million banking facility.
The deal comes a year after Patron hired Mark Collins as chairman of UK investment following his two-year spell at Lloyds within its business support unit where he helped real estate customers that are facing financial difficulties.
CALA went four straight years as a loss-making company until 2011 when it finally turned a profit. Last year, the restructured company managed a six-fold increase in pre-tax profits to £11.4 million alongside a 35 percent rise in development completions of 875 homes and a 16.4 percent house sales gross margin.
Following today’s announcement, the housebuilder said with new backers it would have a stronger balance sheet capacity to add to its land bank and build on “momentum” in its chosen markets such as the Home Counties, The Cotswolds and around Glasgow, Edinburgh and Aberdeen.
It has a around 9,900 owned and contracted plots with a potential gross development value of £3.1 billion equivalent to approximately 10 years of developments against current projections. In addition, the group controls a longer term strategic land bank comprising around 5,400 plots.
Keith Breslauer, managing director of Patron, said in a statement the UK housebuilding sector was a key area of focus for the economy due to its ability to create jobs and fuel economic growth. “A continued undersupply of new housing in the UK, coupled with the availability of land at a lower point in the cycle and legislation to promote development, creates a favourable backdrop for this deal,” he added.
Patron is currently investing from Patron Capital IV, having garnered €880 million in commitments including a €100 million co-investment pool for the vehicle which closed last year.
The provision of homes in the undersupplied UK market has been a hot political potato as well as the perceived lack of lending by British banks to help people onto the housing ladder since the global financial crisis.
Mark Prentice, a director at Lloyds, said: “Lloyds Banking Group has a long standing relationship with CALA and this new growth strategy will significantly strengthen CALA’s balance sheet and put the business in a strong position to benefit from the more stable housing market. The house building sector is of vital importance to the UK economy and Lloyds Banking Group is committed to supporting its growth whether that be supporting housebuilders like CALA or the £6.5 billion we have pledged to lend to first time buyers to help them get on the property ladder.”
Wadham Downing, group M&A and strategy director at L&G added: “At our preliminary results we identified direct investment as one of our five drivers of growth. We are delighted to announce an acquisition in this area as our first M&A transaction for some time. We will continue our evolution as a group by combining our strength in organic growth with selected bolt-on acquisitions, which satisfy our strategic and financial criteria, across each of the five areas identified.“