Aussie engineering firm UGL buys distressed centuries-old real estate company DTZ

Australian engineering firm UGL has paid ?77.5 million for the trading operations of global real estate company DTZ Holdings in a distressed sale, a move some analysts say is a poor decision.

DTZ Holdings was placed into administration in the UK immediately prior to the transaction, as part of the deal.

The acquisition will bring the property component of UGL up to 40% from 30% and push property revenue to nearly $2 billion, according to managing director and chief executive of UGL Richard Leupen.

“It brings a very strong presence in Europe that goes back over 200 years,” Leupen told CNBC.

“We will pick up a big presence in the UK and a very significant valuation and research capability that didn’t previously exist.”

The company will also pick up a large presence in China and Singapore, an important move for the company according to Leupen.

The sale will put the company at the “number one-position in China, with nearly 2,000 people in 18 offices across China,” he says.

“Here in Australia we continue to be driven by China.”

But Morgan Stanley analyst Nicholas Robinson says the move might not pay off.

“We believe UGL is buying what is largely a distressed European real estate broker at a time when the European growth outlook is deteriorating,” he says.

“DTZ lacks a real facilities management offering in contrast to UGL’s North American model, suggesting European facilities management capabilities may still need to be developed post acquisition to deliver on global ambitions,” he adds.

However, Robinson concedes UGL has a successful history of integrating acquisitions including US property businesses Equis and Unicco.

Leupen hinted at future acquisitions in English speaking countries, adding it might take some time.

“We’ve got a bit of digestion here before we buy anything else.”

The sale was 100% debt funded, but Leupen is confident that the company retains a strong debt to equity ratio.

“I can tell you from our perspective that the markets are quite a lot healthier today than it was six to 12 months ago,” Leupen says.

“This investment is at the bottom of the [property] cycle, we hope”.

DTZ, founded in the UK in 1784, was ranked top for valuations in China, and in the top three in the UK and European markets.

UGL is a multinational engineering group that provides infrastructure, rail, resources and services. The company has a market capitalisation of over $3.3 billion and annual revenue approaching $4 billion.