2016 is going out with a bang on the M&A front. And for once, when it comes to headline deals, the agents aren’t even in the game.
From proptech to housing associations, business combinations are rife. Next week, L&Q and East Thames Group will come together to create not just the largest housing association in the UK but a property goliath in its own right. This week, VTS and Hightower announced they were to join forces in a $300m (£237m) deal.
In each of their respective fields, neither deal will be the last. And while the goals will be the same – economies of scale, growth and delivery at pace – the drivers could hardly be more different.
Seasoned M&A junkies will be familiar with much of the theory around business combinations. Consultant AT Kearney identifies the positive drivers of consolidation as a desire to claim first-mover advantage, a compulsion to grow faster, or the desire to change the game. Each applies to the VTS/Hightower deal.
Others latch on to the protective drivers of M&A activity. “Deals will also be driven by defensive combinations,” predicted JP Morgan at the beginning of this year. The analysts probably didn’t have housing associations in mind at the time, but the prediction holds for the social housing sector, which was hit last year by the twin blows of the extension of Right to Buy and the requirement to deliver annual rent reductions.
The traditional housing association business model may be under pressure – even before recent legislative change, post-GFC bailouts were not uncommon – but that is not to say L&Q is on anything other than the front foot. The soon-to-be £20bn business will be big enough, according to my colleague Alexander Peace, who interviewed chief executive David Montague this week, to “swallow Land Securities whole and a housebuilder for dessert” (p46). Given the government’s zeal for greater housing delivery and the lower borrowing costs enjoyed by the sector, housing associations can be a big part of the solution to the housing crisis.
For VTS and Hightower, the picture is very different. It is a deal that confirms the maturing of the proptech sector. As Nick Romito, chief executive of a business that will retain the VTS name, says: “We are at a pivotal moment in the commercial property industry, with the market beginning to realise technology’s true potential.”
In the short term, the combined business will continue to develop its leasing and asset management platform and take it beyond the US and UK. Looking further out, Romito hopes to broaden “our vision to tackle even more ambitious industry challenges around the globe”.
No doubt Hightower co-founder – and now VTS’s chief product officer – will expand on that broader vision when he speaks at EG’s first proptech event on 13 December. It’s one not to miss – Deliveroo and more propcos and proptech businesses than you can shake a smartphone at will be there – do sign up at www.estatesgazetteevents.com/PropTech2016.
There will be more housing association deals next year and more proptech alliances too. And after a relatively quiet 2016, expect agency M&A to resume too. Acquisitions of niche players are probable; heat, rather than light, is more likely to categorise efforts among bigger firms to forge alliances.
For L&Q and East Thames, VTS and Hightower, with the deals done, the hard work begins. And a corporate transaction cannot of itself be the endgame.
At the end of a slightly cheesy but refreshingly relaxed video announcing the VTS/Hightower deal this week, one member of the team asks: “Right, what do we do now?”
“Let’s go build some sh*t,” a colleague responds.
It’s advice that any property business undertaking a corporate transaction – tech, developer or adviser – should heed.
