The \"Once in a Lifetime\" deal

In a massive sell-off forced by the need to pay back state bail-outs, ING Group has sold four of its real estate investment management companies and is now planning to divest more shares and subsidiaries. CB Richard Ellis has been the major beneficiary of this and still has the appetite for more corporate acquisitions

Nathan North, Mladen Petrov

The last few years have been quite a busy time for ING Group. ?In 2008 the Dutch government poured in EUR 40 bln of state aid to rescue the troubled financial sector. The financial health of global institutions such ING Group and Aegon was at stake. ING Group received EUR 10 bln in state aid and it still needs to repay around EUR 7.5 bln, including costs.
Meanwhile, the global firm is doing its best to trim the fat and improve its balance sheets - and divestment seems to be one of the remedies for this. In January ING sold its Asian private banking operations to Singapore\'s Overseas-Chinese Banking Corp for USD 1.5 bln, one of its biggest divestments so far. ING has also reached an agreement to sell the majority of its ING Real Estate Investment Management business (ING REIM) in two separate transactions for a combined price of app. EUR 770 mln. In addition, as part of these overall transactions, ING has also agreed to sell up to app. USD 100 mln of its equity interest in existing ING REIM funds. The move is line with ING\'s goal of reducing its exposure to real estate and simplifying the firm. Both transactions are expected to close in the second half of 2011. At the end of the last year, ING REIM as a global real estate investment manager had a total portfolio of EUR 66.2 bln.
Under the agreement, CB Richard Ellis has acquired ING REIM Europe, ING REIM Asia and Clarion Real Estate Securities (ING REIM\'s US-based manager of listed real estate securities), as well as a portion of ING\'s equity interests in funds managed by these businesses. The three subsidiaries had EUR 44.7 bln in assets under management at the end of last year. In a separate transaction, ING has agreed to sell the private market real estate investment manager of its US operations, Clarion Partners, to its management for USD 100 mln. ING is also to eventually withdraw from Australia, where the firm has under its management assets worth EUR 4.8 bln.

Scaling down
The recent transactions are expected to result in a combined after-tax gain on disposal of app. EUR 500 mln. ING Real Estate Development, which has exposure to the CEE region, and ING Real Estate Finance will not be affected by the transactions. "Real estate development is being scaled down over time, while completing committed projects and real estate finance will remain an integral part of the Bank," reveals Frans Middendorff, ING\'s press officer.
Last year ING Group generated surplus capital of EUR 5.9 bln. The firm is now talking to the Dutch government and is soon to make an announcement on the timing and the size of the repayment. In 2012 the spotlight will be on the group once again as two separate IPOs have been planned for the corporation\'s US, European and Asian insurance operations.
 
On the other side of the transaction
The sale of the ING REIM subsidiaries also represents a major coup for CB Richard Ellis, after seeing off a rival bid from Jones Lang LaSalle. At the end of last year CB Richard Ellis had almost USD 38 bln of assets under management to which it can now add ING REIM\'s almost USD 60 bln of assets under management. According to Brett White, CB Richard Ellis\' CEO: "This transaction creates the world\'s largest commercial real estate management investment management company, and [the deal] is truly a once-in-a-generation, perhaps a once-in-a-lifetime opportunity within the industry." He goes on to explain that: "ING REIM, when combined with our existing global investment management operations, will provide us with a significantly enhanced ability to meet the needs of institutional investors across global markets with a full spectrum of investment programmes and strategies."
CBRE plans to finance the acquisitions with cash in hand and borrowings under its secured credit facility. The company ended 2010 with more than USD 500 mln of cash on its balance sheet, with app. USD 650 mln undrawn on its revolving credit facility and an USD 800 mln unutilised accordion facility.
It also looks as though these will not be the  last corporate acquisitions that CBRE will be carrying out in the near future. The London Evening Standard\' recently reported that the company is in talks to take over UK-based consultancy King Sturge, which has 210 offices worldwide. Brett White refused to confirm or deny this rumour, but did give us an insight into CBRE\'s current strategy in this regard: "The downturn wreaked a lot of havoc and a lot of pain on some of the smaller firms, and I think that it\'s very clear to us that some of those firms, as good as they are, have just come to the conclusion that being a \'tweener\' in this industry is just not a good place to be. And some of those firms are now, we\'re finding, also interested in having discussions they\'ve never been interested in having before... [if] it\'s just too hard a road to slog, they will look for a roll-up of some sort. We will be looking at those firms, as we always do, as good opportunities if priced right, and if we think we can integrate them," declares Mr White.