What do you get for a global real estate services firm that seems to have everything? How about a newarm and a highly refined outsourcing business to help clients manage their real estate tasks?
That’s what CB Richard Ellis Group Inc. (NYSE: CBG) expects to gain from its planned $2.2 billion acquisition of Dallas-based Trammell Crow Co. (NYSE: TCC). Crow’s business will be blended into the larger company’s global network, while its development and investment business will become a wholly owned but independently operated subsidiary, retaining the Trammell Crow Co. name and Dallas headquarters.
Under terms of the acquisition, announced Oct. 31, Los Angeles-based CB Richard Ellis (CBRE) will pay Trammell Crow’s shareholders $49.51 per share of common stock in cash. Theis slated to close later this year or early in 2007. Crow’s share prices, which closed at $39.10 the previous day, bounded 25% on the day of the announcement to close at $48.75 on Oct. 31.
The transaction will expand the services offered to both companies’ customer bases with little redundancy, according to Bob Sulentic, Crow’s chairman and CEO, who will join CBRE as a group president over the development and investment business.
“I don’t look for the integration to be overwhelmingly difficult,” Sulentic tells NREI. In markets where both Trammell Crow and CBRE have offices, those individuals will be brought together at a single location where brokers will continue to serve existing clients. “The way brokerage works, each individual has their own book of business. They get support services from the company and they work on some company-owned business.”
Executives at both companies have described the transaction as complementary. Trammell Crow’s investment and development capabilities will be new to CBRE’s existing clients, and CBRE’s mortgage banking and valuation/appraisal programs are a welcome addition to services available to Trammell Crow’s clients, Sulentic says. “We have now filled in pieces to the puzzle of each of our respective platforms to give clients things they didn’t have before.”
CBRE’s global brokerage services, in particular, answer a longstanding need, Sulentic tells NREI. “Over the years, one of the things our customers wanted us to do was to build a bigger global capability. That’s tough sledding if you do that organically,” he says. “This [deal], in one big leap forward, puts a global capability in place that’s beyond anything in this industry.”
Sulentic declines to discuss the evolution of the transaction, which will be detailed soon in a proxy statement to shareholders.
Perhaps the greatest addition to CBRE’s service offerings will be Trammell Crow’s outsourcing business, which assists clients with everything from property operations to portfolio management. The larger company’s property andgroup currently generates about 8% of total revenues, but bringing in Crow’s business is expected to more than double that rate to 18% of CBRE’s annual revenue.
Already the largest commercial real estate company in the world, CBRE will qualify for inclusion in the Fortune 500 list of largest U.S. corporations after the transaction with approximately $4.4 billion in annual revenue. “Our strategic objective has long been to create the market-leading commercial real estate services firm delivering comprehensive solutions to our clients,” stated Brett White, CBRE’s president and CEO, in announcing the acquisition.
“Well-targeted acquisitions have played a pivotal role in our strategy,” White states. “With the acquisition of Insignia in 2003, we achieved preeminence in our transaction business. Now the acquisition of Trammell Crow Company creates the best-in-class corporate outsourcing and institutional property management business, and further augments our transaction business.”
The merger makes sense for both companies, agrees Bill Goade, CEO of CRESA Partners, a Boston-based tenant-representation firm with 44 U.S. offices. “Trammell Crow didn’t have a lot of brokerage bodies around the nation… and for CBRE, now they’ve got a much more significant development and investment arm.”
Goede says CBRE has achieved its goal of becoming the world’s largest commercial real estate company, and that may help the company’s marketing efforts with some Fortune 500 companies. That global reach isn’t a requirement for all companies, however. “Niche firms like ours on the corporate services end will still have a place,” he says.
“CB has to deal with being a public company. They have to keep growing, and their best growth strategy is to acquire companies, like they just did,” Goede says. “I think they’ll actually look to acquire more, and some of the other firms will also look at merging.”
Goede expects some Trammell Crow brokers to look for smaller shops in which to work, which will create recruitment opportunities for companies like CRESA Partners. He explains, “A lot of the Trammell Crow brokers would be lost in the hierarchy of a CB office, in terms of territory and prospects they can call on, so I think a lot of them are likely to look for other places to work.”