Cromwell Property Group, the Australian REIT, last night announced the acquisition of Valad Europe for €145m, financed by the issuance of a euro-denominated €150m convertible bond.
The sale to Cromwell marks the return to the Australian Stock Exchange for Valad Europe after Blackstone Real Estate Partners VI acquired the pan-European investment manager from Australian-listed Valad Property Group (VPG) in April 2011. Blackstone put its majority stake in Valad Europe up for sale last September with UBS appointed to manage the sale process. Cromwell acquired the entirety of Valad Europe.
Valad Europe’s pan European business manages €5.3bn across 13 countries, 24 investment mandates and 37 wholesale investors.
The firm’s four business lines comprise: value-add funds; core-plus funds; bank workout mandates; and single investor equity mandates.
Across these four business lines, Valad Europe has €3.8bn under management. In addition, Valad Europe currently has investment capacity of approximately €1.5bn spanning eight regions within Europe. This capital is intended to be invested over the next 2 years under existing mandates.
A number of the existing funds and mandates will reach maturity within the next two to three years.
For Cromwell, the acquisition is the next step in Cromwell’s stated strategy of increasing its funds management operations with the Australian REIT keen to capitalise on the much larger real estate current investment opportunities in Europe relative to Australia.
In addition, Cromwell will seek offer Valad Europe’s funds to its South African as well as offering existing Australia and New Zealand value-add product to Valad Europe’s investor base.
Cromwell CEO, Paul Weightman, said: “The acquisition of Valad Europe presents the opportunity to acquire a successful, value add property funds management platform with scale across a number of geographies and sectors. The business is a strong cultural fit with Cromwell, is complementary to our existing funds management operations and furthers our strategy to increase the earnings contribution from funds management to approximately 20%.
“We welcome Martyn McCarthy and the rest of the Valad Europe team and look forward to continuing to grow the Valad Europe business, and to taking advantage of future opportunities across the two platforms.”
It is intended the “Valad” brand will be retained given its strong reputation in the European market and with investors. Following the acquisition, Valad’s Australian business will be renamed.
As part of the Acquisition, Cromwell will retain the existing management and remuneration structure led by Martyn McCarthy and David Kirkby.
McCarthy will take up a role with Cromwell as Executive Chairman – Valad Europe, with primary responsibility for integration and new institutional funds management opportunities globally.
McCarthy will sit on the Cromwell ExCo board and be responsible for facilitating Australian/South African capital into Europe and European capital into Australia.
Martyn McCarthy, Executive Chairman of Valad Europe said: “We are very pleased to have in Cromwell a long term capital partner who is committed to funds management, and is supportive of our continued aspirations to deliver strong performance to, and alignment with, our investor and banking financial partners.”
Cromwell, which has a market capitalisation of €1.8bn, is financing the purchase of Valad Europe through a new €150m unsecured five-year convertible bond, with an optional €50m upsize allowance, which pays a maximum coupon of 2.375% bi-annually.
The bond can be converted into equity after three years, subject to a 130% security price hurdle. Merrill Lynch (Australia) Futures Limited is the sole bookrunner and underwriter.
Anthony Myers, Head of Real Estate Europe at Blackstone, said: “Valad Europe has been a successful investment for us and the business continues to strengthen its presence in the European market. We wish the team well with Cromwell and are confident that they will continue to create further success.”
The acquisition is conditional on Cromwell and Valad Europe receiving regulatory approvals from the UK Financial Conduct Authority and the Guernsey Financial Services Commission which is expected to be received by 9 April 2015.