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Legal & General has agreed to sell Cala Homes to investment groups Sixth Street Partners and Patron Capital for more than £1bn as part of a plan to slim down and focus on its main operations.
The FTSE 100 financial group said it had struck a deal to sell the housebuilder — which sold about 3,000 homes last year — at an enterprise value of £1.35bn, and would receive £1.16bn in cash. Patron formerly owned Cala alongside L&G but sold in 2018 at an equity valuation of £605mn.
L&G’s chief executive António Simões told the Financial Times the deal was one of the “proof points” of his overhaul of the group and had been supported by improving conditions in the housing market.
“There is good momentum, interest rates are helping, so the market is buoyant,” said Simões. “From private equity and the strategic buyers, we saw a lot of people interested in the process.”
Simões took over the group in January, replacing Sir Nigel Wilson, who over more than a decade had reshaped the insurer according to his vision of “inclusive capitalism”, building homes, science parks and other infrastructure that could be parcelled up for its asset management funds or used to match pension liabilities.
The deal is the latest big transaction involving a UK housebuilder, as developers come through a bruising downturn caused by higher mortgage rates and look ahead to a market recovery as interest rates start to fall.
Barratt took over Redrow this year, while Bellway made an abortive bid for Crest Nicholson.
Sixth Street and Patron’s bid beat that from Persimmon, the FTSE 100 housebuilder, according to people familiar with the matter.
US-based Sixth Street, with more than $80bn of assets under management and committed capital, invests across sectors including real estate. Its co-chief investment officer Julian Salisbury said Sixth Street looked forward “to continuing to support Cala and its management team, not only with capital but also with the significant resources of our London-based real estate investment team”.
Cala, a 150-year-old firm focused on the south of England, the Cotswolds and Scotland, has increased its home sales from roughly 1,700 in 2017 to 2,917 last year. The company last year generated turnover of £1.3bn and pre-tax profits of £112mn.
For L&G, the sale represents a first big step in a strategy laid out by Simões at an investor day in June to make the group “simpler” and with a clearer investment case.
The company said it would receive £500mn when the deal closed, likely to be before the end of the year, and the rest of the cash over five years — which it would reinvest in its wider operations, as well as supporting future shareholder returns. The group, which announced a £200mn buyback at the June investor day, was planning to lean more heavily on such repurchases.
It paid more than £315mn to buy Patron’s majority stake in the housebuilder in 2018.
Shares in L&G were down more than 2 per cent by mid-morning in London, a deeper fall than the blue-chip UK stock index, with some analysts highlighting the proportion of the payment that is deferred.
Simões said the successful bid provided the best “combination of valuation and certainty” for the company and showed it was “keeping the momentum” on its new strategy.
