Legal & General Group Plc has today agreed to acquire an interest in CALA Group Ltd, the UK's premium major home builder, from Lloyds Banking Group. The acquisition values CALA at £210 mln (approx. €245.3 mln).
Legal & General will acquire a 46.5% equity stake in CALA, as an equal partner with Patron Capital Partners, alongside management who will take a 7% share. The acquisition will be financed by £140 mln (approx. €163.5 mln) of equity and £70 mln (approx. €81.76 mln) of debt. Legal & General and Patron will both have a representative on CALA's Board.
Legal & General's £65m (approx. €75.9 mln) equity investment will be financed from its own resources and comprises initial consideration of £58m (approx. €67.7 mln) and £7 mln (approx. €8.2 mln) of deferred consideration payable by 17 March 2014. The acquisition is expected to be earnings accretive for Legal & General in its first year and is expected to deliver a return above the Group's weighted average cost of capital. There is no goodwill associated with this transaction.
Legal & General has identified direct investments as a key driver of growth and the acquisition marks the Group's first direct investment of this kind. The acquisition forms part of a strategy to target socially useful projects (including housing, education, transport and energy sectors) that deliver high rates of return and fit Legal & General's financial and strategic criteria.
CALA has a premium market positioning and a presence across the UK in more affluent areas such as the Home Counties, the Cotswolds, and around Glasgow, Edinburgh and Aberdeen. As at 30th June 2012 CALA had gross assets of £354m and profit before tax for the year of £11.4m (approx. €13.3 mln). CALA's current land bank comprises approximately 15,300 plots, including 9,900 owned and contracted, and a longer term strategic land bank of circa 5,400 plots. Owned and contracted plots represent approximately 10 years' output on current projections, with a potential gross development value of £3.1 bln (approx. €3.62 bln).
Wadham Downing, Group M&A and Strategy Director, Legal & General said:
"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.
"We are very excited to have invested in CALA alongside Patron and CALA's experienced management team. We are confident that with this combined expertise and the financial resources that both Patron and Legal & General bring, we can build many more homes in the UK and help CALA grow and realize its potential."
Commenting on the investment Alan Brown, Chief Executive of CALA, said:
"Today's investment represents a significant step forward for CALA and we are now poised for the next phase of our growth. By selecting Patron, one of the leading European real estate private equity houses, and Legal & General, to support the Group in the next stage of our development, we have secured the backing of two highly respected investors who both share our vision for the business. I am also delighted that CALA's excellent relationship with Lloyds Banking Group will be continuing and look forward to their ongoing support as we deliver the next phase of CALA's growth strategy.
"Having invested heavily in growing our land bank since 2010, we are now very well positioned to grow the business significantly over the next five years. From our perspective, the timing of this transaction is perfect and I am tremendously excited about what this deal means for our business as we look forward to a long and fruitful relationship with Legal & General and Patron, both of whom share our values and are passionate about this new partnership."
Commenting on the investment, Keith Breslauer, Managing Director of Patron said:
"This significant transaction for Patron highlights our confidence in CALA, its growth potential and the Group's competitive position in the UK house building sector, which is one of the key areas 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 favorable backdrop for this deal.
"We are delighted to be partnering with Legal & General on this deal and look forward to working with their experienced team as we position CALA for ambitious growth in the medium term."