Cushman & Wakefield Proposes Terms For $765 Million IPO

Summary

• Cushman & Wakefield has filed proposed terms for a U.S. IPO.
• The company provides a broad range of commercial real estate brokerage, management and advisory services worldwide.
• CWK is growing from recent major acquisitions and the IPO appears undervalued by some metrics.

Quick Take

Cushman & Wakefield plc (NYSE:CWK) intends to raise $765 million from the sale of its common stock in a U.S. IPO, according to an amended S-1/A registration statement.

The company provides commercial brokerage and related advisory services globally.

CWK is growing revenue as a result of its recent major acquisitions and the IPO appears reasonably valued based on revenue metrics compared to public competitors.

Company & Technology

Chicago, IL-based Cushman & Wakefield was founded in 1917 “to put their clients and people at the center of what’s next in the world of real estate.” The company provides commercial brokerage and advisory services worldwide.

Company management is headed by Executive Chairman and CEO Brett White, who has been with the firm since 2015. White was previously the CEO for CBRE from 2005 - 2012 as well as President from 2001 - 2015.

The company has 400 offices in 70 countries across six continents. Cushman is a leading firm in many of their key markets. Cushman & Wakefield serves the world’s real estate owners and occupiers. Through the company’s platform, it offers a wide range of services to these customers.

Investors in the firm include TPG Funds (44.7% pre-IPO), PAG Asia Capital (33.6%) and the Ontario Teachers’ Pension Plan Board (11.7%).

Below is a brief overview video of the company’s services:

(Source: Cushman Wakefield)

Cushman is among the largest real estate services firms in the world, with 48,000 employees. The company’s largest service line includes property management, facilities management, facilities services and project and development services. The second largest service line is leasing which includes owner representation and tenant representation. Owner representation leasing includes contracting a multi-year agreement with a building owner to lease available space.

Within capital markets, Cushman represents buyers and sellers in real estate purchase and sales transactions. Financing to support purchases is also arranged. In addition, the company provides valuation and advice on real estate debt and equity decisions to clients.

Customer Acquisition

Cushman has a pipeline of potential acquisitions across geographic and service lines. The company plans to leverage its platform and technology investments to continue to expand its geographic and service capabilities.

Management cites its investments in technology as a strong factor in positioning the firm to expand the number and types of service offerings that the company delivers to global customers.

Management lists the following as keys trends in the industry:

• Continued Growth in Occupier Demand for Real Estate Services
• Institutional Investors Owning a Greater Proportion of Global Real Estate
• Owners and Occupiers Continue to Consolidate Their Real Estate Services Providers
• Global Services Providers Create Value in a Fragmented Industry
• Increasing Business Complexity Creates Opportunities for Technological Innovation

(Source: S-1/A statement)

Market & Competition

According to a 2017 market research report by IbisWorld, from 2012 to 2017, the global commercial real estate brokerage and advisory industry experienced revenue of $3 trillion, representing a CAGR of 5.4%.

The main factors driving market growth are expanding business and retail operations across the globe. The U.S. is the single-largest CRE market in the world. However, demand for commercial real estate in the EU is projected to improve in the years ahead.

According to National Real Estate Investor, the commercial real estate brokerage firms market is growing in both leasing and investment sales volumes. Firms reviewed in the report posted more than $100 billion in transactions in 2015.

Major competitors in the commercial real estate brokerage and advisory space include:

• CBRE Group (CBRE)
• Jones Lang LaSalle (JLL)
• Newmark Grubb Knight Frank (NMRK)
• Colliers International (CIGI)
• Eastdil Secured

Management lists several competitive strengths that position them to capitalize on key trends in the commercial real estate services industry. These include:

• Global size and scale
• Breadth of service offerings
• Comprehensive technology strategy
• Industry-leading capabilities in acquisitions and integration
• Capital-light business model

Financial Performance

Cushman’s recent financial results can be summarized as follows:

• Increased topline revenue, but at a decreasing rate of growth
• Increased gross profit
• Uneven but declining gross margin
• Uneven cash flow used in operations

Below are the company’s financial results for the past three calendar years (Audited PCAOB):

(Source: S-1/A statement)

Total Revenue ($)

• Q1 2018: $1.8 billion, 21% increase vs. prior
• 2017: $6.9 billion, 11.3% increase vs. prior
• 2016: $6.2 billion, 47.6% increase vs. prior
• 2015: $4.2 billion

Gross Profit ($)

• Q1 2018: $295 million
• 2017: $1.3 billion
• 2016: $1.1 billion
• 2015: $800 million

Gross Margin (%)

• Q1 2018: 16.7%
• 2017: 18.8%
• 2016: 17.8%
• 2015: 19.0%

Cash Flow from Operations ($)

• Q1 2018: ($171 million) cash used in operations
• 2017: $4.4 million cash flow from operations
• 2016: ($335.1 million) cash used in operations
• 2015: ($43.6 million) cash used in operations

As of March 31, 2018, the company had $438.7 million in cash and $5.4 billion in total liabilities.

IPO Details

CWK intends to sell 45 million shares of common stock at a midpoint price of $17.00 per share for gross proceeds of approximately $765 million.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s post-IPO market capitalization would be approximately $3.37 billion, excluding the effects of underwriter over-allotment options.

Management says it will use the net proceeds from the IPO as follows:

approximately $470.0 million to reduce outstanding indebtedness, in particular to repay our Second Lien Loan, which matures on November 4, 2022 and had a weighted average effective interest rate of 8.87% as of December 31, 2017;

approximately $130.0 million to repay the outstanding amount of the Cassidy Turley deferred payment obligation;

approximately $11.9 million to terminate our management services agreement; and

approximately $107.4 million for general corporate purposes.

Management’s presentation of the company roadshow isn’t available at this time.

Listed bookrunners of the IPO are Morgan Stanley, J.P. Morgan, Goldman Sachs & Co., UBS Investment Bank, Barclays, BofA Merrill Lynch, Citigroup, Credit Suisse, William Blair, TPG Capital BD, HSBC, Credit Agricole CIB, China Renaissance, Academy Securities, Loop Capital Markets, Ramirez & Co., JMP Securities, Fifth Third Securities, The Williams Capital Group and Siebert Cisneros Shank & Co.

Expected IPO Pricing Date: August 1, 2018.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.