Copyright: David Lawson – appeared Property Week Oct 1998Home page
While US investors are slashing European expansion plans and real estate shares plunge, North American consultant LaSalle showed no regrets this week about merging with Jones Lang Wootton in a long-awaited deal to create a global property consultancy worth more than £550m.
'This move is not about today's market. It is about what it will be worth in 10 years,' said Chris Peacock JLW chief executive. 'We have nothing in common with what is happening to real estate investment trust shares,' added LaSalle's Stuart Scott who will now head up the combined Jones Lang LaSalle. 'It is about what our corporate client's have been demanding.'
And he scotched rumours that the long negotiations broke down several times. JLW 365 partners, who are set to receive 12.5m LaSalle shares in exchange for their firm, were unruffled when the price in New York dropped by more than 20%, he said. Their eyes are also on the future, says Peacock, as most are relatively young. 'Unlike other potential merger partners, no-one seemed to be looking to cash in their chips at the end of their career,' added Scott.
The 60-year-old American has been chosen to lead the merger because of long experience handling US corporates and running a public company, says Peacock, who will also take the title of president. He was in no mood this week to worry about one potential fly in this ointment - UK fund managers' complaints that this latest in a spate of UK/US mergers was spurred by a wish to raise capital for co-investment.
'Their attitudes will change in future, particularly once the market develops for securitised property funds,' he says. Scott points out that it is not a requirement in any case. Setting up a 500m dollar investment fund in Paris needed LaSalle's seed capital of 5m dollars to show good faith. 'But co-investment will only happen if clients want it.'
The merger not as a short-term surf across the globe on the back of investors but a permanent expansion of corporate services. 'Occupiers want a one-stop for everything from a new building to changing a doorknob,' says Scott. Investors want expertise on the ground - which is why JLL is planning to boost resources to JLW'S 32 offices across the world, says Peacock.
Linking into JLW's international network was LaSalle's main motivation. 'We looked at other ways of expanding but it was expensive, time-consuming and would have taken 15 years,' he says.
Similarly, JLW needed a link into global giants, two-thirds of whom are based in the US. But Peacock also sees an untapped multi-billion-dollar market outside North America. Most of JLW's ś4bn fund management portfolio is in the UK. The merged group will position itself as a property investment bank giving the same service in other countries.
Talks have been going ever since JLW approached LaSalle about a US partnership two years ago. But Scott's first priority for his 30-year-old company was to restructure and float on the New York Exchange. Then he looked around for world partners. 'We talked to lots of people but wherever we went, from Europe to Asia, they said JLW was the big one,' he says.
Peacock says there was little choice outside LaSalle because the US firm matched the JLW investment and service-based culture rather than being driven by brokers. Both also agreed on a share-swap producing a marriage of equals rather than a sale, leaving most of the firm owned by staff.
JLW LaSalle Partners
Founded 1783 1968
Staff 4,000+ 2000+
1997 Revenue 256.5m pounds 186.9m pounds
1997 Profits 28.6m pounds n/a
Offices 32(countries) 19(plus 500 suboffices)
Property 23m sq metres 37m sq metres
Funds 3.7bn pounds 8.2bn pounds
JLW's Hanover Square offices are now being altered to become the world operational HQ, where Scott will be based, even though JLL will be listed in the US. Peacock says a London listing will be added 'as soon as the markets settle down'. The holding company will be based in Chicago, which will also be the investment management HQ. The 40-strong US operation will be merged with LaSalle.
The only new offices planned are in South America. 'We already have a pretty full spread across the world,' says Peacock. Chris Penn has been doing groundwork in Brazil for nine months and Compass, the facilities group acquired by LaSalle has an office there. Other countries will see extra resources and staff to expand corporate services and investment management, the real growth area identified by both Scott and Peacock.