Legal & General has sold its UK housebuilder CALA Group in a deal worth 1.35 billion pounds ($1.78 billion) to an acquisition vehicle led by U.S. private assets firm Sixth Street Partners, as the latter steps up its European investment drive.
The British life insurer will receive cash proceeds of 1.16 billion pounds, of which around 500 million pounds will be paid at closing with the remaining sum paid over the next five years on a deferred non-contingent basis.
The sale, which is expected to complete in the fourth quarter, reflects L&G’s plan to simplify its portfolio to focus on its core businesses.
“We feel that we found the right buyer and certainly the right valuation with the right certainty,” L&G Chief Executive António Simões told Reuters.
“Maybe the answer would have been different even six or certainly 12 months ago,” he said.
Britain’s housing market remains an area of concern for some economists, with annual house price growth reaching 2.2% in July, down from a revised 2.7% in June, government data published on Wednesday showed.
L&G shares, which have fallen 11.7% so far this year, were trading 2.9% lower at 0922 GMT, compared with a 0.6% fall in the FTSE 100, as analysts debated the price tag, deal structure and the absence of an immediate return of capital to investors via a share buyback.
Analysts at KBW said the deal value was at the “top end of a range” in media reports but RBC Capital said the cash proceeds reflected a lower price-to-net asset value multiple than the 1.2 times Barratt Developments agreed in its 2.52 billion pounds deal to buy Redrow plc in February.
The CALA sale is also unlikely to move L&G’s capital position significantly, both analysts said.
“There is no published impact on solvency. The group says solvency capital requirement should fall by 100 million pounds and that would add around 3 percentage points to the solvency ratio,” KBW said in a note.
REAL ESTATE EXPANSION
Simões said offloading the housebuilder was in line with L&G’s new simplification strategy unveiled in June but the group’s interest in broader real estate markets was increasing.
“The three asset classes I am going to grow in are real estate, infrastructure and private credit. Don’t expect to see anything outside those, my growth is focused on those,” he said.
L&G launched investment strategies in Britain’s affordable housing and Build to Rent sectors earlier this year, and expects to grow each to 4 billion pounds by 2028.
Simões said all investment opportunities in its retail, institutional, retirement and asset management businesses were being assessed against a “rigorous” capital allocation framework, with target returns on capital and on cash of 14%.
If those investments don’t measure up, capital will be returned to shareholders, he added.
In June, Reuters reported Sixth Street had embarked on the biggest European recruitment drive in its 15-year history, leasing a new regional headquarters in London’s Mayfair and adding up to 20 employees for a push into private credit and real estate.
Julian Salisbury, co-chief investment officer of the $75 billion global investment firm – which counts a number of ex-Goldman Sachs stars among its leaders – said he looked forward to working with co-investor Patron Capital to support CALA’s ongoing growth.
