When TPG, the San Francisco-based private equity firm, and Ivanhoé Cambridge, the real estate investment firm of Canadian pension fund manager La Caisse de dépôt et placement du Québec, purchased European logistics investment and development firm P3 Logistics Parks in 2013, the vision was to create a €2.5 billion business in five years. The platform was sold in a deal valued at €2.4 billion to sovereign wealth fund GIC Private, in just three.
As Anand Tejani, partner at TPG’s real estate platform, TPG Real Estate, recalled, buying P3 was a classic case of opportunistic investing: “The acquisition of P3 required us to work through a very complex situation with multiple stakeholders and creditors at both corporate and asset levels.”
TPG’s engagement followed a failed flotation of P3, an exercise meant to provide liquidity to its ill-fated owner, the Bahraini investment firm Arcapita. “After the IPO failed, we reached out to P3’s management and advisors and told them we could work with them to present Arcapita with a solution that would be attractive to them, their creditors and P3.”
At the point of listing, Arcapita was in receivership. So keen were creditors to exit P3, and so impressed were they by TPG’s pitch to buy it, they circumvented the conventional auction process for the firm and granted the American buyout specialist exclusivity. “It is very rare to acquire a business in US Chapter 11 outside of an auction, but it enabled us to to rebase the equity and restructure the debt efficiently and quickly. Despite the complexity, we were able to complete our work in six weeks, which was attractive to the creditors,” said Tejani.
The deal was a classic case of buying good assets cheaply from a stressed situation, fixing the debt and plenty of growth, although there was also strategy alteration, corporate repositioning and selective overhead reductions.
Tejani described P3’s growth, done “inorganically” via piecemeal acquisitions, as well as “organically” via a reinvigorated development pipeline, an unconventional strategy by real estate private equity standards. But the firm had faith its underwriting at the platform level would still play out regardless; faith rewarded with returns understood to have far exceeded the 20 percent IRR and 2x equity multiple customarily expected from opportunistic outlays.
On entry, P3 was 48 assets comprising 16 million square feet and a 6 million-square-foot landbank. It had 97 tenants served by around 60 staff. Upon its sale, P3 had become 169 assets comprising 35.5 million square feet and a 15 million-square-foot landbank. There were more than 300 tenants and 99 staff, too. By Tejani’s reckoning, GIC has inherited a stabilized, core acquisition with plenty of upside. He pointed to profitability up 350 percent and EBITDA by 600 basis points. “Working with management and Ivanhoé Cambridge, we are pleased to have built P3 into a much stronger business,” he said.
While the sale of P3 represented a case study in deal execution for TPG, the shifting of such a strategic asset by Ivanhoé Cambridge to GIC Private caused some private real estate executives to scrutinize the motivations behind the deal. “Yes we have a hole,” admitted one senior executive from Ivanhoé Cambridge. “Time will tell if it was a wise decision on our part.”
According to the executive, the firm’s original investment in such a turnaround and growth situation faced opposition at parent CDPQ, given the pension manager was, generally, a buyer of stabilized, income-producing assets and not a seller.
To then offload P3 once stabilized, and to another long-term collector of stabilized assets like GIC, led some to question whether the sale was in the best interests of CDPQ. Another source familiar with the deal believed it could have been motivated for two reasons: to demonstrate to CDPQ Ivanhoé Cambridge’s investment decision-making and execution capabilities and to realize a strong return ahead of schedule.