A few short years after its founding, Cassidy Turley has emerged as a significant commercial real estate player in the 60 markets where it operates. But the organic growth and strategic acquisitions that drove the company to this point could only go so far.
Executives wanted to grow further - to join the ranks of the JLLs and CBREs of the world - and fast.
The answer was a sale to an investment consortium, announced Monday, that will buy the company and combine it with DTZ, the Chicago-based real estate services firm which until recently was based in London. The new firm will be known as DTZ Group.
"There are different paths we could have followed, but to do it organically through our own acquisition efforts would take longer to affect the outcome we wanted," C. Michael Kamm, the San Francisco-based president of Cassidy Turley, told me in an interview Monday. (The longtime Bay Area executive is staying with the company in a similar capacity, but his title hasn't been determined yet.) "When you look at the marriage of these two organizations, it lines up in a manner that was very strategic and tactical, and we felt that was best for everyone."
The deal came together relatively quickly. Joseph Stettinius Jr., Cassidy Turley's CEO, Monday told me that "serious" discussions began in earnest only about three or four months ago - though the companies had been talking off and on for two or three years prior.
The conversations accelerated after the investment consortium - comprised of private equity powerhouse TPG, PAG Asia Capital and the Ontario Teachers' Pension Plan - announced it would acquire DTZ in June.
Financial terms were not disclosed, but it was likely a good one for existing shareholders: On Tuesday, the Wall Street Journal, citing anonymous sources, said the deal valued Cassidy Turley - which has not taken any outside equity investments since its founding - at between $500 million to $600 million, including less than $75 million in debt. The Journal said annual income was " in the $70 million range" based on revenue of $650 to $670 million.
Washington, D.C.-based Cassidy Turley is a major player in Silicon Valley thanks to its acquisitions of longtime firms BT Commercial and CPS in recent years. The firm had 113 brokers based in the region, according to the Silicon Valley Business Journals' most recent rankings. That put it one slot below market leader Cornish & Carey, with 136 brokers.
DTZ - the Z is pronounced the European way, as in, "zed" - operates in 52 countries, has 209 offices and 24,200 staff. Revenue was $2 billion, according to a company fact sheet.
?Driving the deal
Stettinius told me that the TPG-led group was an obvious fit: The new company would receive major backing, which it needed to grow in new markets. At the same time, combining forces with DTZ - which is not a huge player stateside - gives Cassidy Turley the overseas connection it currently lacks while avoiding the overlap that can exist when brokerages that compete in the same markets merge.
"The ability for the consortium to create a combo of us and DTZ, who's obviously very strong in Europe and Asia, in combination with our strength in the US - we did not believe we'd be able to replicate that kind of fit," Stettinius said. "There's just not a lot of overlap, so there's not a lot of breakage. If we didn't do it with them as a partner, we wouldn't have an obvious answer on the rest of the world."
Stettinius added that the companies' cultures and ambitions also jibed: "We got really comfortable that they are very committed to creating the best commercial real estate services firm in the world," he said.
Bigger is better?
Outside observers I spoke to on Tuesday noted that the deal - slated to close Dec. 31 - continues the now-familiar trend of brokerages gobbling each other up to compete and was likely a good one for Cassidy Turley.
"What you have now is another company-owned global entity, very much in line with Cushman & Wakefield, CBRE, JLL, Newmark," said Ross Ford, president and CEO of Texas-based TCN Worldwide, a network of independent commercial real estate firms, which includes San Francisco's Starboard Commercial Real Estate.
"It's not a huge sea change in terms of the U.S., because Cassidy Turley was already in that game here," he said. "But it is now a global competitor with groups that are investing in it to help it to grow."
Still, Ford wondered how many major global players the marketplace can support.
"I would have to guess at some point that the large integrated real estate model can only support so many competitors, and I would suspect that number is somewhere in the 4 to 5 range," Ford said. "Anything more than that and you're fighting so hard for the same clients you start you can do damage to your revenue."
Indeed, the deal comes on the heels of another big acquisition: Newmark Grubb Knight Frank's pickup of Santa Clara-based Cornish & Carey, which executives said was also part of a growth play amid an increasingly global client base.
But Jeffrey S. Lyon, chairman and CEO of Seattle-based Kidder Mathews, said that the bigger-is-better mindset is not for everyone. Kidder Matthews now has nine offices on the West Coast and is growing. But it doesn't have ambitions to match JLL, Lyon said. Despite its small size, the firm has carved out niches (such as biotech and China services in the Bay Area) and is able to compete for business at all levels. But the smaller transactional work is nothing to sneeze at.
"We're very happy to let them duke it out at that very, very high level, because there's so much business below the business they're playing in," Lyon told me in an interview.
He added that he views major corporate acquisitions such as this one as opportunities to attract new talent.
"I think there's some truth initially to saying there isn't any overlap, but at the end of the day, how are those brokers going to be managed, and how is their platform and culture going to change?" he said. "Are they going to have to hit benchmarks or report to someone at a level they really don't want to? That's really where you start seeing some movement."
The CBRE connection
The newly combined DTZ Group enters a market a significant player, but it is still unlikely to shoulder its way around a CBRE - at least right away.
National Real Estate Investor pegs the total global dollar value of leasing and investment sales for CBRE Group Inc. at $233.3 billion, the top firm on the publication's most recent list. JLL was No. 2, with $162.12 billion. Rounding out the top 5: Cushman & Wakefield, with $115 billion, Newmark Grubb Knight Frank, with $83.4 billion and Colliers International, with $75.15 billion. Cassidy Turley was ranked at No. 10, with $32.6 billion, while DTZ came in at $30.34 billion. (The list didn't take into account other service lines; DTZ is a massive player in property management, which is very lucrative.)
"It's a tough business," Ford said. "CBRE is still the biggest kid on the block, JLL is very successfully executing a strategy. Then you have Cushman and Newmark. It's not as if they're going into a battlefield where there's no one else or only one competitor. They're doing battle with a whole bunch of companies that are just as big or bigger."
But Cassidy Turley may not be done. Also announced Monday, Cassidy Turley said it is bringing on board former CBRE Group CEO Brett White as director next year. White, who ran CBRE as CEO from 2005 to 2012 (and was a top executive for years prior) is considered a key architect in that firm's emergence as a real estate goliath. He was involved in three major CBRE acquisitions - that of Insignia, Trammell Crow Co. and ING's real estate arm. Observers said his arrival at Cassidy Turley could be similarly significant.
"One thing that was exceptional about CBRE is they not only grew in terms of geographic coverage and breadth of services, but more importantly they expanded their product line by getting into investment management, fund management, creating their own funds," Ford said. "You realize their brokerage capacity is only one piece. CBRE is almost a diversified financial services firm that happens to focus on commercial real estate."
A shrinking pool of acquisition targets notwithstanding, Cassidy Turley executives on Monday said that more expansion into new markets could be in the works. Cassidy Turley is not in Seattle or Miami, and its Chicago and Los Angeles presence has been muted.
"We now have capital source which is much more robust than we had before," Kamm said. "We had capital before, but when you combine the consortium's access to capital any deal is possible at this point."
One other change: The Cassidy Turley brand will be cast aside. That name successfully gained traction in the years since the firm - essentially an outgrowth of several firms formerly associated with Colliers - joined together under the Cassidy Turley name in 2010. But officials said they needed a single name and DTZ - which is a much larger organization and has significant brand recognition overseas - was the obvious choice.
"We're really proud of the Cassidy Turley brand, we invested a lot to make it what it is, but it's also only four years old," Kamm said. "When our organizations put their marketing resources and their culture and people and clients behind the establishment of the new DTZ brand, it will gain traction very quickly."
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