Legal & General Capital has bought the remaining 52.1% of Cala Homes from Patron Capital Partners.
It paid £315m for the share, which reflects a value of £605m for Cala alongside transaction costs and the contribution of management and Patron during the period of joint ownership.
Revenue has grown threefold at the housebuilder from £241m in 2013 to £748m in 2017.
L&G reported operating profit before tax for its stake in Cala Homes in 2017 of £42.5m. Overall, profit has increased from £21.7m in 2013 to £92.8m to the end of June 2017.
What L&G has bought:
- Return on capital employed was 18.6% in both 2016 and 2017
- Around 1,000 employees – with half on the construction side
L&G was unable to provide up to date figures on Cala’s landbank or homes under construction, but according to its last trading statement in the year to the end of June 2017 it had:
- Completed 1,677 homes, up from 1,151 the year before, while the number of active selling sites was 48
- 11,393 homes with planning in the landbank on sites owned by Cala
- 27,666 homes in total in the landbank on sites owned, controlled or with an option
A timeline
- 19th century: First Scottish company to be listed on the London Stock Exchange
- 1999: Taken private – expands for a decade
- 2009: Debt for equity swap with Lloyds, which gave bank control
- March 2013: L&G and Patron buy business from Lloyds for £210m. Each take a 46.5% equity stake, alongside the management team’s 7% share
- October 2016: Chinese company Evergrande approaches Cala for acquisition. Lazard appointed to advise.
- April 2017: Patron ups stake to 52.1% as part of deal with Electra Private Equity
- March 2018: Reports emerge L&G in advanced talks to buy out Patron Capital
L&G Capital chief executive Kerrigan Procter: “This made a lot of sense for us”
Unsurprisingly, private equity firm Patron sold out of Cala almost five years to the day after buying Lloyds’ share.
L&G too might have been expected to sell its share of the business after approaches by Chinese giant in Evergrande in 2016.
However, according to Kerrigan Procter, chief executive of L&G Capital, the fresh investment into Cala made sense.
“I have worked in investment for about 25 years now. You always look at things rationally and coldly… You have got to make a return on it,” he says.
“For me it was coming in in January, pouring through the figures, looking at it with an investment mindset. It just made a lot of sense, and the timing was right for Patron too.”
Procter says while the group would not automatically have said no to a sale, L&G was not actively looking to sell: it was the one approached by Evergrande.
“We are very patient in terms of our capital, it’s long-term capital, and we see really significant growth potential with Cala – fantastic brand and presence,” he said.
“We’ve really got to know the asset well over the past five years, and I was keen to extend our investment, and that made sense for Patron too.”
While the London housing market has cooled, regional sales are still strong, and are widely supported by government policy, which is actively trying to increase the number of homes being built.
L&G Capital’s cash is “on” balance sheet – meaning it’s not pension fund money managed by the group. It has around £6bn of shareholder-funded assets, and Cala will be held amongst those as a direct investment.
“I think of L&G Capital as having two main reasons for existing,” says Procter.
“The first is its shareholder fund money. The returns on that £6bn go back to our shareholders. First and foremost we need to get a good return on our investment.
“The second thing is to make it relevant for L&G – to make it relevant for an investment and insurance company if we can invest the money to generate assets that pay yields, that’s an additional reason to invest.”
How Cala can and will work alongside L&G’s other development arms was a major driver of the deal.
It will enable moves on strategic housing and regeneration sites in partnership with LGIM and its rental, social and regenerative arms. This can be then passed onto LGIM funds that have annuities to meet.
“It’s great working with LGIM because we can co-invest. Not only does L&G talk very positively about the industry but we put our money in with theirs,” said Procter.
“That’s what we are aiming to do there: that multi-tenure proposition. Some build-to-sell, some retirement, some 106, and we can contribute to that. Then, of course, with Cala there is the potential to have a different branded plot on the same site.”
Due to its relatively premium pricing, Cala also has the advantage of not being too reliant on government schemes such as Help to Buy, should any of them be taken away.
Procter says the intention over the next five years is to keep what it has while expanding. There will be no management changes as part of the deal.
“We want to keep the brand because we have been involved over the past five years. We know what the plans are for growth, the operational capabilities, and we want to see those very credible plans fulfilled.”
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See also: L&G completes acquisition of Cala Homes
