Did Cushman’s largest owner just throw in the towel?
2018 headline: “TPG Played Cushman Deal Perfectly And Made A Huge Profit” (Bisnow)
TPG got a $300M windfall by (i) buying the old Cushman operations for $1.9B, buying DTZ for $1.1B, and buying Cassidy Turley for $0.5B, then (ii) IPO'ing all the operations together under the C&W brand.
However, much of TPG's bet stayed in the new, publicly traded C&W company. At the time of the IPO, Bisnow estimated that TPG's eventual profit could approach $1 billion, but it also warned...
"As the price of the shares rises or falls... that profit figure will change."
Well, it (TPG's profit) changed, and the pioneering private equity firm seems to be accelerating its wind down at much lower-than-expected pricing.
C&W shares are down 40-45% to about $10/share, which puts its equity cap at about $2.2B. It has more than $3B of debt that is running in the wrong direction in terms of proceeds and cost. About $2.5B of that debt matures next year, and slower transaction volumes aren't helping; C&W's revenues have fallen by about 7%, its EBITDA is down by nearly 50%, and its operating margin is hovering around 7-9%.
TPG was the largest owner of C&W shares until it made its largest stock sale to date in late 2023 at depressed share prices. Only one investor (Fidelity) was a larger seller of C&W's shares last year. Now TPG maintains about 10% of the outstanding equity.
Takeaways:
-- These issues are purely upstream from C&W's operations. C&W has some of the strongest and most successful brokers in the business, but it will be interesting to see if enterprise/capital challenges eventually affect operations. In some ways, these challenges could be good for brokers, since C&W will likely seek to avoid any perception of flight.
-- M&A: Would it make sense for another shop (CBRE) to buy C&W? Maybe, but why not just throw cash at brokers and brokerage teams? Also, a $2.2B company isn't small, so it would take a very large buyer, which would almost certainly have a lot of overlap between operations, limiting some of the 1+1=3 benefits that justify M&A activity.
-- Light at the end of the tunnel: How could C&W emerge from this? Lower interest rates, more favorable capital markets, and/or a meaningful pick-up in activity. ...none of which are out of the picture. Cushman's bonds are trading around 7-7.5% yields, and the firm will likely make progress on operating margin via more cost-cutting and a rebound in transaction activity.
We'll get an updated read when C&W reports earnings in early Feb, but it looks like TPG is on the way out.
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