Savills takes back 40% stake from Cordea’s management

Savills has bought in a 40% stake in its European property fund management arm from the management, after failing to find a buyer.

Savills will pay £13.6m-£15.4m over two years for the stake in Cordea Savills LLP. The business manages £2.5bn of assets mainly in co-mingled, specialist funds. It made a £2.9m profit in 2009, and £3.6m in 2008. It has £12.4m of gross assets and no external debt.

Management is guaranteed £13.6m, reflecting a multiple of 11.7 times 2009 earnings, or about 9.5 times 2008’s profit, on which the deal was based. To receive the full £15.4m, the Cordea Savills team will have to have boosted profits over 2009 (when they fell), 2010 and 2011 by 100%, compared with the three years to the end of 2009.

The business has 89 staff, including the members who owned the 40% interest, and offices in London, Paris, Milan, Munich, Stockholm, Luxembourg and Singapore. Chairman John Partridge, chief executive Justin O’Connor and chief operating officer Bill Hackney owned almost 18%, and about 10 staff own 22%.

O’Connor said prices for fund management businesses “were in the high teens” times earnings at the top of the market “but now are seven to 12 times”, while “salaries are probably down by a third across the board”.

When the business was set up in April 2004, Cordea Savills’ management agreed that after five years, Savills would sell the 40% stake to a management-approved buyer with resources to expand the business, or buy them out. “But people were only interested in buying the whole business,” O’Connor said.

The buy-out rewarded the management for developing Savills previous, small, in-house business, O’Connor added. “We took a small, segregated fund manager and made it an international business. But as individuals, we didn’t have the capital to fund the business and Savills said: ‘why should we fund your share of the business?’.

“The next phase is to see where Cordea Savills can grow, by acquisitions or co-investment. The good thing is there is no change in control, management or structure. If we had sold to someone else, we would have had to change the model.” In its results for the year to December 2009, released on 18 March, Savills said buying the stake was part of its strategy “to build the non-transactional aspects of the business”.

Cordea Savills’ revenue fell 10.8% to £17.4m (from £19.5m in 2008) “mainly as a result of lower transaction income,” the company said. “Like much of the industry, Cordea Savills spent most of 2009 consolidating its fund positions and working through the impact of asset value falls.

“It restructured its closed-end Italian Opportunities Funds (1 and 2), and other Northern European closed-ended funds. “The team launched the UK Income and Growth Fund. This, plus strong inflows into the UK Charities Property Fund and Euro Commercial Fund, represented successful fund raising in a difficult year.”