Inside JLL’s $2B Deal for HFF

Christian Ulbrich, Global CEO, JLL (Image courtesy of JLL)

JLL’s plan to acquire HFF for approximately $2 billion in cash and stocks is set to accelerate the company’s goal of doubling its capital markets business by 2025.

Since 1998, HFF has closed in excess of $800 billion in more than 27,000 transactions, achieving record revenue of $662 million in 2018. Mark Gibson, HFF CEO, will join JLL as CEO of Capital Markets for the Americas & co-chair of its Global Capital Markets board. Key HFF senior leaders and capital markets have entered into three- to four-year commitments related to employment, non-competition and/or retention. When asked during a Tuesday morning call with analysts, JLL officials did not disclose how many of HFF’s 392 capital markets advisors were expected to move to JLL.

 “When you look at HFF performance, this is an outstanding team that has demonstrated they are able to deliver outstanding results in various market environments,” Christian Ulbrich, JLL global CEO, said during the call.

Asked about growing a capital markets team organically versus through acquisition, Ulbrich noted clients had often mentioned HFF to JLL as a potential partner to strengthen the global firm’s capital markets platform.

 “Growing capital markets has always been a key element of our strategy, with a particular focus on the U.S.,” he said during the call. “This merger will significantly strengthen our capital markets expertise in the U.S. and around the world.”

The acquisition is also expected to accelerate growth of its debt advisory business in Europe and Asia Pacific and drive increased operating efficiency globally.

Growth through M&A

HFF, which is based in Dallas and operates out of 26 offices, offers clients a fully-integrated capital markets platform including debt placement, investment advisory, equity placement, funds marketing, M&A and corporate advisory, loan sales and commercial loan servicing. The firm services both capital consumers—developers, private owners, private equity funds, institutional investors and REITs—and capital providers including commercial and investment banks, conduits/debt funds, life insurance companies, family offices, private equity, institutional investors and REITs. HFF had $100 billion of transaction volume in 2018 and a total of 2,587 transactions and an $81 billion loan servicing portfolio balance.

Jahn Brodwin, Senior Managing Director, FTI Consulting (Image courtesy of FTI Consulting)

“JLL and HFF are two industry powerhouses. The merger will give them a deeper bench and in some cases, dominance in many markets, as well as provide a boost to JLL in terms of providing capital markets services,” Jahn Brodwin, senior managing director of the real estate solutions practice at FTI Consulting Inc. in New York told Commercial Property Executive. “Many companies are looking to grow and it is difficult to grow organically in a meaningful way if you are already a large company.”

Brodwin noted the deal “is a great way to have accretive growth as presumably the merged companies will be able to eliminate redundant costs and cross-sell to each other’s client bases.”

JLL, itself the product of a merger in March 1999 of Jones Lang Wootton and LaSalle Partners, has often chosen to grow through M&As over the years. Ulbrich said the HFF acquisition would be the firm’s third large-company purchase going back to the acquisition of Dallas-based Staubach Co. in 2008. The goal with the Staubach acquisition was creating a premier U.S. tenant representation platform.

In 2011, JLL acquired King Sturge, a market-leading European-based property services firm to create a leading EMEA platform. In 2015, JLL added OakGrove Capital, to expand the Capital Markets platform and help JLL become a U.S. multifamily market leader in debt financing. In smaller deals, JLL added several companies including BRG, a Dallas-based leader in workplace technology consulting, implementation and space management services, in June 2016. That deal came just days after JLL announced it was adding New York City-based Merritt & Harris Inc. to its project and development services roster.

Transaction details

JLL intends to fund the cash portion of the purchase price with a combination of cash reserves and its existing syndicated credit facility.

The plan has been approved by both firms’ boards and is expected to close in the third quarter. Under the terms of the definitive agreement, HFF shareholders will receive $24.63 in cash and 0.1505 JLL shares for each HFF share. Based on the closing prices of JLL stock of $163.02 on March 18, the cash and stock consideration to be received by HFF shareholders at closing is valued at $49.16 per HFF share. HFF shareholders need to approve the deal.

“This is a terrific transaction for our shareholders, providing them with an immediate cash payment and the opportunity to participate in the long-term value of the combined company,” HFF’s Gibson said in a prepared statement.

JP Morgan is serving as exclusive financial advisor for JLL and Sidley Austin LLP as legal counsel. Morgan Stanley & Co. LLC is acting as exclusive financial advisor for HFF and Dechert LLP is HFF’s legal counsel.

Chicago skyline image via Wikimedia Commons