US property investor Lone Star has made a £630m offer to buy retirement housebuilder McCarthy & Stone, becoming the latest private equity firm seeking to take advantage of discounts to listed UK property companies.
The bid values McCarthy & Stone at £1.15 a share, a premium of 39 per cent to Thursday’s closing price of 83p, but still well below pre-pandemic levels. In mid-February, the housebuilder’s shares were trading at £1.58.
“McCarthy & Stone represents an attractive opportunity in a market underpinned by clear fundamentals: a rapidly ageing population and a structural undersupply of suitable housing options for older people,” said Donald Quintin, president of Lone Star Europe, on Friday.
Lone Star is the latest in a series of major US investors to have capitalised on tumbling share prices by snapping up portions of, or entire, companies. Brookfield, the Canadian asset manager, has been building a stake in British Land, one of the UK’s largest commercial landlords.
Last month, KKR, the private equity firm, took a 5 per cent stake in Great Portland Estates, a FTSE 250 landlord.
McCarthy & Stone directors are unanimously recommending shareholders vote in favour of the bid.
“The all-cash offer represents a compelling and attractive opportunity for shareholders to realise and crystallise their investment in McCarthy & Stone in the near term,” said Paul Lester, chairman of McCarthy & Stone.
The company’s share price jumped 40 per cent on the announcement.
The unanimous recommendation was no surprise, said Aynsley Lammin, an analyst at Canaccord Genuity.
McCarthy & Stone has been hit hard by the pandemic and, “with the onset of a second wave of the virus, it is only reasonable to expect trading conditions and the implementation of elements of its strategy will become more difficult, particularly given the average age of its customer”, he added.
The company reported a statutory pre-tax loss of £91.3m for the six months to April 30, compared with a profit of £3.6m in 2019, as last year’s general election and the pandemic slowed completions and revenue slumped 64 per cent year on year.
McCarthy & Stone has sought to position itself to benefit from the coronavirus crisis, extolling the merits of its retirement villages as safe and secure places for the elderly to live, and distancing them from care homes, which have been at the centre of a number of UK outbreaks.
Lone Star has been on the hunt for acquisitions in recent months. It had been in the race to buy UK supermarket chain Asda, but pulled out of that deal last month, with a £6.5bn-plus price tag said to be the sticking point.
Deutsche Bank is acting as a financial adviser to McCarthy & Stone on the acquisition, and Knight Frank is acting as a property adviser to Lone Star.