A little extra advice

The acquisition strategies of individual real estate consulting agencies naturally vary depending on their goals and needs, but they always boil down to one thing: the need to adapt to the ever greater requirements of clients and the growing volume of capital on the market. The better planned the geographic and expertise expansion is, the better the chances of staying afloat. This strategy can be seen in the latest results of some of the largest agencies, which to some extent have been influenced by a number of bigger or smaller acquisitions. In the financial year ending in December 2015 the consolidated revenue of Colliers in the EMEA region (in US dollars)
skyrocketed by 26 pct y-o-y, while JLL’s grew by 10 pct and CBRE could even boast an increase of 28 pct. At the same time CBRE invested app. USD 1.6 bln on nine new acquisitions, while JLL completed or announced 24 takeovers with a total value of almost USD 604 mln. Meanwhile, Colliers has finalised eleven acquisitions since June 2015, including three in the EMEA region. “We are making an effort to balance out the business. We had some geographic gaps, which we have filled and we now feel it’s time to fill the service gaps,” Chris McLernon, the CEO of Colliers International EMEA, explains. “We want to double the size of the company by 2020. That’s our global ambition for all our six regions around the world. We will do this in a combination with organic growth, so we are looking at increasing our market share by doing larger and more complex transactions, and through the recruitment of key experts on the market. We will also do this through new acquisitions,” he adds.

Holism rules

The high acquisition activity is not only down to the good economic climate, but is also the product of necessity. The business has been changing with lightning speed. Tenants and investors as well as the consultants who advise them are faced with new problems and also potential opportunities in the fields they previously had no chance of gaining experience in. This was the case with Corrigo, which has recently been acquired by JLL. The company provides cloud-based facility management solutions that automate many aspects of commercial property maintenance, including the work order, monitoring completed work and paying invoices. “We bought a couple of businesses last year, in particular Corrigo, which is a pure play technology company, and that is new for us. But what we are seeing across our markets is that technology is impinging on the way we are operating our business for our clients and the way in which our clients want to interact with the markets,” says Colin Dyer, the CEO of JLL. This trend is also true for the retail sector. “The growth of e-commerce and the increasingly sophisticated consumer base mean that retail investors and landlords have to work harder than ever to ensure the competitiveness of their assets,” said Michael Strong, CBRE’s executive chairman for the EMEA, when the company was taking over PSM Center Management, a Switzerland-based shopping centre consultancy.

It is also the case that sometimes the giants of the real estate services market simply cannot keep up with all the intensive simultaneous development in many expert fields. Furthermore, it is difficult to maintain a monopoly of knowledge in an ever-shrinking world. Meanwhile, real estate outsourcing is becoming increasingly popular. The expectations of clients, whether local or international, starts to go beyond that of requiring a standard decent service in terms of valuation, leasing, purchases, sales, management and marketing. The days of mass service are coming to an end. Full-service and tailor-made services are taking over. However, such skills, i.e. the contacts and knowledge needed as well as the knowledge that has to be accumulated, are not developed in one day. Acquisitions are often the only option. But the road to them is not always strewn with roses.

It takes two to tango

Even though consultancies tend to sometimes simply ask their existing clients what new companies and competences they would like to see in their portfolios, an effective search for potential purchases requires extensive work. “My job is to go round looking for opportunities – we give them the Colliers pitch and see how we can accelerate their businesses. We offer to accelerate the clients’ success and people’s success, so if we can find an acquisition opportunity and we can do it faster together and they fit in with our values and culture, it’s a match,” explains Chris McLernon from Colliers International. However, having a similar world view is, as is the case in any relationship, not sufficient. Patience and tolerance are also necessary in the acquisition of a new business. “There has to be a win-win situation. Otherwise you are going to have problems down the road. You have to spend more time upfront understanding how things are going to be afterwards: are you going to be able to work together and if you share the same ambitions in going forward. If you do that upfront then things are going to go easier. If you try to take a top-down approach and say this is the way we do it, this is the corporate way, you are going to have breakdowns in my opinion,” he argues. Colliers is not the only one that makes a thorough selection of new, promising purchases. The company’s competitors also have similar strategies in terms of “shopping”. The so-called big four – the original auditing companies that grew to become business advisors for investment and real estate – do not want to be left behind. They are also keeping their fingers on the acquisition pulse and replenishing their human, service and technological resources whenever possible [see chart].

However, the general revival in this respect does not have to be convenient for buyers themselves. According to an M&A report by business consultancy Mercer, nowadays 41 pct of buyers are reporting less time for completing due diligence before making a binding bid, compared to three years previously, and 33 pct say that sellers are providing less information about the asset for sale. This trend is expected to continue.

Who gets what?

Thanks to such acquisitions, it is not only the agencies’ clients who are given access to a broader spectrum of opportunities. Acquisitions are also a proven, and sometimes the main, way to collect interesting people, contact bases and innovative ideas from the market before this is done by the competition. Or before the now small companies shoot up to such an extent that they will not want to consolidate or will have higher financial demands in the future. This is why international chains often target smaller companies with small teams of just a few or so people. In such cases one of the natural problems that arise is a growing concern about the organisational shake-up. The vision of working in a corporation or changes in the character of the precious relations with clients developed by the acquired company might become a source of concern when entering the new business reality after the acquisition. An appropriate approach and sensibility also count here. According to Chris McLernon: “We want our professionals out on the marketplace creating solutions for our clients. So it’s not a bureaucratic, red tape, top-down structure. It is very much a flat structure that attracts a certain type of professional who wants the freedom to be able to work under an umbrella that makes them feel they can innovate and serve their clients to the highest level,” he says. At Colliers, a special team is responsible for the internal integration of new entities. The company also establishes a special adaptation strategy for each of its new partners. Worries about conflicts of interests might be an obstacle sometimes, but not always. When Colliers International bought AOS, a commercial real estate and workplace agency 100 pct focused on occupiers, there was concern whether they would lose some clients because of Colliers International’s dual character, namely the fact that it advises both landlord and occupier clients. AOS had strongly positioned itself as a company that does not represent the other side. “But after the announcement we didn’t lose one client or deal, as the expertise and professionalism remained in place,” claims Chris McLernon. “In joining a global platform you are more of a safe choice: there is a global business with a strong foundation – but you are still there, you are still the account person in client representation. It’s a value-add having the resources and expertise of a global platform behind you,” he adds.

There is also another additional value. All the market giants are keen to invest in making their company ever more attractive as a place for the best professionals on the market. Extending the scope of competences through acquisitions, including specialist ones, allows them to face new challenges and provides a basis for further growth. The knowledge transfer is also important for the other side of the equation – the freshly acquired personnel. “We want to make sure that when we take on-board a new acquisition, they immediately join in and they fully understand the rich platforms that are available [Colliers gives its staff access to two knowledge distribution and online educational platforms: Colliers Hub and Colliers University – editor’s note] to accelerate their business and ultimately their clients,” says Chris McLernon.

Not only DTZ and C&W

Which expert fields and regions have the greatest chance of attracting acquisition attention from the main players? “Our acquisitions cover all regions and service lines,” says Colin Dyer of JLL. “We focus on high-margin opportunities, minimising the operational overlap that destroys value, and we plan and manage the integration very carefully,” he adds. This approach is shared by Chris McLernon: “Being a global business, capital can go anywhere, so it has to be the best idea, it has to have the best ROI. If we have a growth opportunity in Frankfurt and our colleagues in the US have an opportunity in New York and the guys in Asia have another in Hong Kong, there will have to be some internal competition to prove which is the best investment. We’ll try to do all three, but sometimes we have to focus and say which one is the best opportunity.” This doesn’t mean that the agencies won’t look for bargain opportunities when they spot them. “We still have a nice strong volume of in-fill M&A, as strong as we’ve seen in the past, but we are selective around it and we are very careful around pricing,” argues CBRE’s Bob Sulentic.

The absorption of smaller, specialised companies that support the real estate market has one other advantage. It can increase the value of the buyer, which, with the growing enthusiasm for consolidation across the sector, could be profitable for large companies sooner than they expect. An attractive combination of competences in the fields that interest the potential buyer or partner is an additional argument in favour of a merger within the sector. “The industry is going to continue to consolidate – there will be more mergers and acquisitions. Some of the regional firms, whether in Europe, the Americas or Asia, will be attracted to the bigger players in order to service and meet the demands of their clients. I think that a segment of the smaller specialised boutique firms will continue to be aggregated by the larger ones,” says Chris McLernon. For Bob Sulentic, the president and CEO of CBRE Group, the company’s M&A activity is also a guarantee for the future. “In a downturn not only will we have the financial dry powder to invest, we’ll have a platform that’ll be more attractive to different types of targets, people and businesses,” he says.

Some notable 2014/2015 acquisitions

Accenture

• Javelin, a UK-based retail strategy consultant and omnichannel retail expert
• Total Logistics, a logistics and supply chain development consultancy

CBRE

• Global Workplace Solutions, an international facility and property management company
• PKF Consulting and PKF Canada – hotel and tourism consultancies
• Forum Analytics, a US-based retail modelling and mapping systems provider
• Tax Credit Group, a US investment sales, debt and structured finance advisor and research services provider
• PSM Center Management, a Swiss shopping centre management, leasing and consulting firm
• Environmental Systems, a US-based energy management services provider
• Paragon Project Management, an Australia-based specialised project management company

Colliers International

• Hatton, a London-based tech-focused office agent (announced in 2016)
• H2SO, a London-based office agency and investment specialist
• Ganly Walters Management, a Dublin-based property and facility management firm
• IDB Real Estate Management, a Belgium-based asset and property management firm
• AOS Group, a commercial real estate and workplace consulting firm with offices in eight countries
• Bryant Champion Long, a UK-based retail specialist
• Property Partners, a Hungarian property management company
• Dexus, a Georgian real estate advisory firm

JLL

• Neo-Świat, a Polish fit-out company
• Big Red Rooster, a US-based brand experience and retail design services company servicing retailers and consumer brands
• Pioneer Corrigo, a cloud-based facility management solutions provider
• Avenue9, a UK-based start-up providing IT consulting services for the hotel and hospitality sector
• Martin Potts & Associates, a US project and construction management services provider
• Wilson Retail Group, a US-based retail brokerage and capital markets firm
• Nextport, a Stockholm-based tenant representation and relocation management service provider
• AGL, a Stockholm-based real estate financial advisory
• LodgeTax, a US-based real estate tax consulting services provider

Savills

• SEB Asset Management, a German-based asset manager