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Aareal Bank: co-investment option takes German property deal over line

Bank jobs rarely go according to plan. Private equity groups Advent and Centerbridge have discovered that in their pursuit of Germany’s Aareal Bank.

Activist shareholders in the real estate lender slammed the door on a €29 per share offer the two made last year. The buyout groups returned with financial back-up on Tuesday. The fresh €33 per share proposal values the bank at €2bn and seems certain to dislodge any remaining holdouts.

Reluctance was understandable. German commercial property remains attractive to lenders. Vacancy rates for offices, particularly in Berlin, are holding up relatively well. The work from home trend is weakening and occupancy is supported by resilient tech and public sector tenants.

European property yields, net initial yields by country, Q1 2022 (%) European real estate deals, transaction volume (€bn) Aareon growth expectations, Adjusted ebitda (€mn)

Aareal’s crown jewel, however, is its property management software division Aareon. Mismanagement of the asset was the hook for activists in the first place. Giving shareholders the option to participate in the proposed buyout should be enough to push the deal through this time.

Petrus Advisers, the largest shareholder, has committed to tender its 18 per cent shareholding. It will reinvest half of the proceeds in the bidco for a seven-year term. Other activists taking similar terms include Teleios, Vesa and Talomon. Total commitments to accept the proposed new offer stand at 37 per cent. That is almost as much as the 43 per cent of the total shareholder base that was happy to accept the previous offer.

Aareon is expected to grow rapidly as technology and big data penetrate old school property empires. Hartmut Thomsen from SAP Germany arrived just this week as the unit’s new chief executive. Ebitda earnings are expected to double at least by 2025 to €155mn.

US peer RealPage was taken private by Thoma Bravo at the end of 2020 at a 44 times ebitda multiple. Even at half that valuation, Aareon would be worth €3.2bn in 2025 or three times what Advent paid for its original stake in the subsidiary.

The consolation for those unable to invest alongside private equity is a better price for a business with inevitable exposure to the economic war with Russia.

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