March 18, 2013 9:06 am

L&G buys Cala from Lloyds in £210m deal

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Cala Homes, one of Britain’s oldest housebuilders, has become the latest UK property group to be sold to new owners, as investors bet on a recovery in the housing market.

The Scottish-based company – which builds in affluent areas, including the Home Counties, the Cotswolds and Edinburgh – was among a number of construction groups taken on by Lloyds Banking Group at the height of the financial crisis.

Share prices of UK and US homebuilders compared

Share prices of UK and US homebuilders compared

But, with housebuilders’ fortunes improving, Lloyds has been offloading these property holdings – and, on Monday, it announced a deal to sell Cala to a joint venture between Legal & General, the insurer, and Patron Capital Partners, the private equity company, for £210m.

For both Patron and L&G, the acquisition of Cala represents a first-ever direct purchase of a housebuilder. However, it comes amid a wider surge of deals that have involved debt funds, private equity groups and insurers moving in to residential property development – fuelled by the belief that the UK housing market can emulate the recovery achieved in the US.

Mark Aedy, managing director at Moelis, the investment bank, told the Homebuilders Federation conference last week that the arrival of these new investors was likely to precipitate a wave of housebuilder deals.

“For the past 25 years, the housebuilders have dominated corporate activity among housebuilders,” he pointed out. “Now, there’s a whole new group of participants – the American debt funds, insurers, and private equity. They will also want to sell eventually.”

Lloyds, which inherited a range of property holdings when it acquired HBOS in 2008, has been the main catalyst for the uplift in merger and acquisitions activity over the past two years.

Earlier this year, rival housebuilder Crest Nicholson rejoined the stock exchange with a successful £553m listing – the first initial public offering in the sector since 1996.

Lloyds had previously owned a 29 per cent stake in Crest, but sold it to Varde, the US debt fund, in September 2011 – bringing to an end a quarter of a century period in which almost all deals in the sector involved rival housebuilders.

However, with the banks forced to retrench in the face of increased capital requirements, and run down their underperforming loan books, some new investors – including insurers, private equity and debt funds – have been looking to step into the gap.

Other recent deals have included Countryside Properties selling a stake to Oaktree Capital, the private equity company, in February, and Miller Group’s sale to GSO Capital Partners, the debt fund arm of Blackstone, in December 2011.

The Cala deal comes at a time when generous government lending schemes and cheap land have revived the fortunes of housebuilders – many of which fell into serious difficulty during the financial crisis. Shares in the five largest groups – Barratt, Berkeley, Taylor Wimpey, Persimmon and Redrow – rose by an average of 71 per cent last year.

Keith Breslauer, managing director of Patron Capital and a former Lehmans banker, said: “When the US housebuilding market really took off, people saw there’s a real opportunity here [in the UK]. While what’s happened in the US is very different to the UK, the macroeconomic situation that drives opportunity is similar.”

Legal & General and Patron Capital Advisers will each take a 46.5 per cent stake in Cala’s business, with Cala’s management acquiring 7 per cent. The deal, which is financed with £140m equity and £70m debt, will contribute to L&G’s and Patron’s earnings in the first year.

Wadham Downing, L&G’s group strategy director, said the group was seeking more chances to invest directly in infrastructure, and had a £36.5bn war chest at the ready.

Cala – once the City of Aberdeen Land Association – was the first Scottish company to list in London, in 1875. Hit hard by the financial crisis, it returned to profit in 2010. The group posted a pre-tax profit of £11.4m and had gross assets of £354m in the year to July 2012. It has a ten-year land bank of about 15,300 plots, with a potential gross development value of £3.1bn.

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