LEGAL & GENERAL'S FIRST DIRECT INVESTMENT IN HOUSE BUILDER - CALA GROUP
18 March 2013
Legal & General Group Plc ("Legal & General" or the "Group") has today agreed to acquire an interest in CALA Group Ltd ("CALA"), the UK's premium major home builder, from Lloyds Banking Group. The acquisition values CALA at £210m.
Legal & General will acquire a 46.5% equity stake in CALA, as an equal partner with Patron Capital Partners ("Patron"), alongside management who will take a 7% share. The acquisition will be financed by £140m of equity and £70m of debt. Legal & General and Patron will both have a representative on CALA's Board.
Legal & General's £65m equity investment will be financed from its own resources and comprises initial consideration of £58m and £7m of deferred consideration payable by 17 March 2014. The acquisition is expected to be earnings accretive for Legal & General in its first year and is expected to deliver a return above the Group's weighted average cost of capital. There is no goodwill associated with this transaction.
Legal & General has identified direct investments as a key driver of growth and the acquisition marks the Group's first direct investment of this kind. The acquisition forms part of a strategy to target socially useful projects (including housing, education, transport and energy sectors) that deliver high rates of return and fit Legal & General's financial and strategic criteria.
CALA has a premium market positioning and a presence across the UK in more affluent areas such as the Home Counties, the Cotswolds, and around Glasgow, Edinburgh and Aberdeen. As at 30th June 2012 CALA had gross assets of £354m and profit before tax for the year of £11.4m. CALA's current land bank comprises approximately 15,300 plots, including 9,900 owned and contracted, and a longer term strategic land bank of circa 5,400 plots. Owned and contracted plots represent approximately 10 years' output on current projections, with a potential gross development value of £3.1bn.
Wadham Downing, Group M&A and Strategy Director, Legal & General said:
"At our preliminary results we identified direct investment as one of our five drivers of growth. We are delighted to announce an acquisition in this area as our first M&A transaction for some time. We will continue our evolution as a Group by combining our strength in organic growth with selected bolt-on acquisitions, which satisfy our strategic and financial criteria, across each of the five areas identified.
"We are very excited to have invested in CALA alongside Patron and CALA's experienced management team. We are confident that with this combined expertise and the financial resources that both Patron and Legal & General bring, we can build many more homes in the UK and help CALA grow and realise its potential."
Commenting on the investment Alan Brown, Chief Executive of CALA, said:
"Today's investment represents a significant step forward for CALA and we are now poised for the next phase of our growth. By selecting Patron, one of the leading European real estate private equity houses, and Legal & General, to support the Group in the next stage of our development, we have secured the backing of two highly respected investors who both share our vision for the business. I am also delighted that CALA's excellent relationship with Lloyds Banking Group will be continuing and look forward to their ongoing support as we deliver the next phase of CALA's growth strategy.
"Having invested heavily in growing our land bank since 2010, we are now very well positioned to grow the business significantly over the next five years. From our perspective, the timing of this transaction is perfect and I am tremendously excited about what this deal means for our business as we look forward to a long and fruitful relationship with Legal & General and Patron, both of whom share our values and are passionate about this new partnership."
Commenting on the investment, Keith Breslauer, Managing Director of Patron said:
"This significant transaction for Patron highlights our confidence in CALA, its growth potential and the Group's competitive position in the UK housebuilding sector, which is one of the key areas of focus for the economy due to its ability to create jobs and fuel economic growth.
"A continued undersupply of new housing in the UK, coupled with the availability of land at a lower point in the cycle and legislation to promote development creates a favourable backdrop for this deal.
"We are delighted to be partnering with Legal & General on this deal and look forward to working with their experienced team as we position CALA for ambitious growth in the medium term."
For further information from Legal & General, please contact:
+44 (0)20 3124 2150
+44 (0)20 3124 2047
+44 (0)20 3124 2090
+44 (0)20 3124 2095
For further information or to arrange to speak with Alan Brown, Chief Executive of CALA Group Limited, please contact:
Andrew Jaques, Reg Hoare
+44 (0)20 3128 8788
For further information or to speak with Keith Breslauer, Managing Director of Patron, please contact:
Emma Kane, Henry Columbine, Hannah Fensome
+44 (0)20 7566 6720
NOTES TO EDITORS:
1. The transaction involves Legal & General entering into a joint venture agreement with Patron which contains customary governance and exit provisions, including transfer and drag rights which, when exercised, would require the consideration to be paid for a joint venture party's stake to be determined by reference to the future profitability of the joint venture or an independent valuation.
2. Legal & General were advised by Goldman Sachs International.
3. Legal & General Group Plc
Established in 1836, Legal & General is a leading provider of protection, annuities, savings and investment management products in the UK, with a market capitalisation of £10bn1. In its recent 2012 preliminary results earnings per share were up 12% to 13.90p and dividends per share up 20% to 7.65p for the period. Legal & General's return on equity for 2012 was 15.5%. The Group has millions of customers in the UK for life assurance, pensions, investments and general insurance plans.
· Our investment management business, Legal & General Investment Management (LGIM), is responsible for investing £406bn2 worldwide on behalf of investors, policyholders and shareholders. LGIM is one of the largest investors in the UK stock market, managing around 4% of all London listed equities. LGIM has leading capability in index, active fixed income and liability driven investments and manages £43bn2 of assets for international clients.
· Our UK Protection and Annuities businesses insure customers' potential financial exposure from death, illness, injury or household damage, and provide retirement annuities for individuals and pension schemes. In 2012 UK protection and general insurance gross premiums reached £1.6bn, and the annuity portfolio is £32bn2.
· Our UK Savings business has £70bn2 of assets under administration and provides a range of retail savings funds and savings structures to individuals and workplace clients.
· Legal & General America (LGA) writes protection products in the US market, focusing on higher sum assured policies and in 2012 gross premiums increased to US$922m2.
1 As at 15 March 2013
2 As at 31st December 2012
For more information on Legal & General, please see http://www.legalandgeneralgroup.com/
4. CALA Group
CALA Group is a national house builder with its headquarters in Edinburgh. It provides high quality homes in the North, East and West of Scotland, in the Midlands and in the South East of England, with a focus on high quality, well-designed homes in prime locations, from starter homes to luxury detached family properties. CALA is an acronym for City of Aberdeen Land Association.
· In 2012 CALA profit before tax was £11.4m, a six fold increase on the previous year. At the half year end (31st December 2012) home completions were up 13% on the equivalent period last year, while pre-tax profits were £9.6 million and the house sales gross margin was 19.7% (up 5.9% on the previous year).
· The Group's trading performance during the first eight weeks of 2013 has been exceptionally strong with increased private home sales up 34% to 154 (2011: 115) at an average sale price of c. £330,000, consistent with the same period last year. Average sales per site per week are up 31% to 0.72 for the eight-week period (2011: 0.55).
· CALA Homes builds around 875 properties each year.
· CALA Homes won House builder of the Year, Best Medium House builder and Best House at the 2012 What House? Awards. The company was also named House builder of the Year and Best Large House builder at the Scottish Home Awards.
· In March 2013, CALA Homes received the maximum 5 Star rating in the Home Builder Federation's National New Homes Customer Satisfaction Survey for the fourth consecutive year.
· Health and safety is of paramount importance to CALA. In 2012, the company reduced the number of minor injuries reportable under RIDDOR to five and has reported no major injuries in the last four years. Over the course of the last four years CALA has had the lowest average annual incidence rate of any house builder in the HBF benchmark of companies.
· The current CEO Alan Brown, and CFO Graham Reid, will continue to be fully involved in operating the business going forward.
· For further information about CALA, please see http://www.cala.co.uk/group/
5. Patron Capital Partners
· Patron represents approximately €2.4 billion of capital across several funds (including its most recent Fund IV) and related co-investments, investing in property, corporate operating entities whose value are primarily supported by property assets and distressed debt and credit related businesses.
· Since it was established in 1999, Patron has invested in over 100 transactions across over 50 investments, involving approximately 40 million square feet in 13 countries, with many of these investments realised.
· Investors represent a variety of prominent universities, major institutions, private foundations, and high net worth individuals located throughout North America, Europe, Asia and the Middle East.
· The investment advisers to Fund IV are Patron Capital Advisers LLP and Patron Capital Europe sarl.
· The investment advisers are based in London and Luxembourg and Patron has other offices in Barcelona, Milan, Dreieich (Germany) and Luxembourg, the group is comprised of 71 people, including 42 investment professionals.
· For further information about Patron, please see http://www.patroncapital.com/
Forward looking statements
Nothing in this announcement should be construed as a profit forecast. In particular, statements that the transaction will be earnings accretive are not, and do not constitute, a profit forecast and should not be interpreted to mean that Legal & General's or CALA's earnings following the transaction will necessarily match, or be greater than, the historical published earnings of Legal & General or CALA.
This document may contain certain forward-looking statements relating to Legal & General Group, its plans and its current goals and expectations relating to future financial condition, performance and results. By their nature forward-looking statements involve uncertainty because they relate to future events and circumstances which are beyond Legal & General's control, including, among others, UK domestic and global economic and business conditions, market related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory and Governmental authorities, the impact of competition, the timing impact of these events and other uncertainties of future acquisition or combinations within relevant industries. As a result, Legal & General Group's actual future condition, performance and results may differ materially from the plans, goals and expectations set out in these forward-looking statements and persons reading this announcement should not place reliance on forward-looking statements. These forward-looking statements are made only as at the date on which such statements are made and Legal & General Group Plc does not undertake to update forward-looking statements contained in this document or any other forward-looking statement it may make.