The IPO the (property) world has been waiting for moved a whole lot closer this week: on Wednesday Cushman & Wakefield lodged its intent to go public with the US Securities & Exchange Commission.
The firm’s filing is quite the blockbuster. There are big numbers: 48,000 employees, 400 offices in 70 countries, 3.5bn sq ft of commercial real estate under management, $6.9bn (£5.2bn) in revenues.
There are revelations: with an adjusted, impressive EBITDA margin of 14%, EMEA is the most profitable part of the business.
There are cliffhangers, too: no details on timing, offer price or value of the business, though informed speculation points to a valuation in excess of $5bn.
And that noise you can hear? That’s the sound of hands being rubbed together: this will be a significant wealth creating moment for many of those who have worked at DTZ, Cassidy Turley and C&W.
But what the 334-page document highlights most explicitly is where C&W believes future growth in the real estate advisory world will come from. And it neatly captures the state of the advisory market today.
1. Continued growth in occupier demand. C&W – like JLL and CBRE – believes occupiers are focusing on their core business and choosing to outsource real estate services. Global businesses want global partners, according to the filing, and “today, only three firms, including Cushman & Wakefield, meet those requirements”.
2. Growth in institutional ownership of global real estate. This is supporting the drive for outsourced property management, transaction and advisory services. C&W says that, like occupiers, institutional owners use third-party businesses, but more, and more so than private owners.
3. Owners and occupiers continue to consolidate their providers. Clients’ desire to achieve economies of scale and have a “single point of contact” for service delivery is the driver here.
4. Global services providers offer value in a fragmented industry. In other words, only firms as large as C&W can achieve economies of scale that save clients money.
5. Increased complexity requires tech innovation. Clients expect tech solutions; tech requires investment; ergo only the bigger businesses can afford the tech solutions that will really make a difference.
It all sounds compelling, sensible and exactly what you would expect a firm of C&W’s scale getting itself IPO ready to be saying. But it also points to a couple of potential hurdles ahead.
When Newmark Group went public in the US in December, it failed to achieve its target price. C&W is a different proposition, and the list of blue-chip banks advising it should be able to avoid a repeat.
More significant perhaps is the challenge of differentiation. C&W’s IPO would cement the global top three and there is little in its filing that could not be said of CBRE and JLL.
“Differentiation is hard at the high end of this industry,” C&W chief executive Brett White told me two years ago. “We all do generally the same things.”
If, as is likely, a listed C&W’s next big acquisition is of a global investment manager, there will be even less to differentiate the firms. It would then be down to the equity markets to make a judgment about which it prefers.
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