Thursday 14 November 2019

The right moves: DTZ deal causes shockwaves

DTZ Sherry FitzGerald
DTZ Sherry FitzGerald

Paul McNeive

In my 28 years in estate agency my firm was always linked with overseas partners. In that time the identity/brand of our "international associate" changed four times due to mergers and splits by global players and ultimately the firm was acquired outright.

The acquisition of Cushman and Wakefield (CW) by DTZ reminds me of some turmoil associated with those changes. So what are the reasons behind the move and what are the implications in Ireland?

Recessions tend to encourage mergers as cost saving measures and because acquisitive companies prefer to make their moves when earnings (and therefore acquisition prices) are low in the cycle. Globalisation has driven a spate of estate agency acquisitions and some brands disappeared whilst the biggest players got enormous. By turnover, CBRE is the biggest player in the world with fee income in 2014 of $9bn but the DTZ/ CW merger, with combined income of $5.5bn, creates a powerful third force alongside JLL.

International markets have rebounded well and fee income is improving so it's no surprise that a major player made a move while the costs of financing a deal are at a historic low. DTZ have paid $2bn for CW, although the deal is being presented as a merger. Interestingly, the enlarged company will trade as Cushman and Wakefield and the new arrangement affects firms currently connected with both brands, their staff and clients.

The deal has implications for two of the great Irish brands, the Sherry FitzGerald Group (20pc of whose commercial business is owned by DTZ) and Lisney (who are the Irish representative for CW). Presumably the new CW will have to decide which company will represent it here and which one will lose their international connection.

One would expect the DTZ part ownership in Sherry Fitzgerald to be influential in moving the CW branding to D4, but neither firm should take anything for granted, as we discovered at HOK 12 years ago, following the merger that created CBRE. CBRE had inherited a shareholding in Gunne but were already associated with HOK, with whom they were doing huge levels of international business. Certainly the market assumed that CBRE could not walk away from the turnover it was doing with HOK, but that's exactly what they did.

The best explanation we had was that CBRE could add little value by leaving the brand with a "mature" market leading company, but that the CBRE brand added enormous value and impetus to the smaller, excellent Gunne firm. Make no mistake about it, these corporate deals are all about leveraging the power of the brand and increasing shareholder value. Relationships will count for little.

Global branding and the marketing power and connections that go with it are vital in winning business. For example, it's hard to imagine Nama awarding the sale of an investment portfolio to a firm that can't demonstrate how it will cover all the global markets. Cross border investment and development deals create the big fees but global corporate services is the main battleground for the big brands.

Another twist is that neither DTZ nor CW are in the second hand residential business, which is a powerhouse for both Irish firms. The attitude of CW to that may be an issue in the discussions. The merger will provoke lots of creative thinking at the Irish firms and internationally, brands like Colliers and Knight Frank will be considering any reaction.

Ironically the CEO of the merged DTZ/CW, Brett White, was previously CEO at CBRE. I once spent a day with him in Barcelona, representing HOK at a CBRE meeting. I was impressed with his boundless enthusiasm and "can do" attitude, which mark him out as a leader.

All these brands have the same issues, from how to get staff in different countries working together better, to winning more pitches, to disputes over fees. Ultimately, the best success arises when individuals establish strong relationships with individuals in other offices and the sharing of information, deals and fees takes off.

There will be implications for some clients and other agents may see opportunities for "headhunting" of staff. But it's not the end of the world for the firm not anointed with the new CW branding. At HOK we used the apparent setback as a rallying call, attacked the market and increased turnover by over a third the next year.

Change brings opportunity too.

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