Ever since US private equity giant Blackstone made headlines back in April by taking aim at listed property companies, the question has been not if another listed UK property company will go private but when?
We may now have an answer. Earlier this week, Countryside Properties (CSP) revealed that it had received a second offer from private equity firm Inclusive Capital Partners which valued the company at around £1.5bn. Shares in the housebuilder soared 26 per cent on the morning of the offer – hitting a high of 301.6p – before settling back down in the afternoon.
If approved, the In-cap takeover would be the latest in a slew of take-private deals for the listed property sector. The move is an interesting case study into what private equity sees in these companies.
For a start, In-cap has made it clear that Countryside has the potential to be run better, arguing that the housebuilder has been poorly managed. Not pulling any punches, its founder Jeffrey Ubben released a statement accusing Countryside’s board of presiding over “the flawed acquisition of Westleigh in 2018, a dilutive equity financing in 2020, and the appointment of a chief executive officer with little to no prior public company executive experience that oversaw overly ambitious expansion into new geographies and investment into excess manufacturing capacity that is now generating losses”.
The Countryside board was quick to respond, defending its record as a “market leader” with “good growth potential” and urging its shareholders to take no action in response to the offer. It rejected the two offers arguing that they “materially undervalued” the company.
Yet, as harsh as In-cap’s assessment of Countryside might seem, many of the private equity firm’s criticisms echo points made in Countryside’s own internal review. The document was published last month by Countryside chair John Martin, who was standing in as interim chief executive at the time after Iain McPherson’s swift exit from the company following a profit warning in January. The review concluded the housebuilder had “failed to realise the benefits” of the £135mn acquisition of Westleigh and was “too ambitious” in its expansion into new regions.
A week after the review was published, In-cap made its first of two offers for the company. The private equity firm, which already owns 9.2 per cent of Countryside’s shares, made its initial offer on 14 April to buy the remaining shares at 225p in cash with a contingent entitlement of up to a maximum of 59p structured as a contingent value right (although the exact terms of this potential payment were not published). Its second offer made on 17 May was to buy the remaining shares at 295p per share – a 31 per cent premium to last Friday’s closing price.
In-cap argues that its £1.35bn offer is fair when compared with other recent housebuilder takeovers such as Countryside’s aforementioned acquisition of Westleigh in 2018 and Bovis Homes’ takeover of Galliford Try in 2020.
The fairness of In-cap’s offer will be for the shareholders to judge but, if the recent share price spike is to be believed, the deal certainly has a lot of backers. Considering Countryside started this year trading at 457p, that does show just how vulnerable the profit warning and broader industry conditions have made the company.