DTZ and Donaldsons merger creates pre-eminent retail property advisers

DTZ, a leading global property adviser, has acquired the business and assets of Donaldsons LLP, the privately owned, UK-based property consultancy, for an initial consideration of £39.8 million, plus deferred consideration of up to £8.8 million.

The transaction will significantly enhance DTZ’s comprehensive service offering in much of Europe, particularly in relation to retail property. Donaldsons clients will also benefit through access to the broader client-focused property services of DTZ’s pan-European and global platforms. The combined business will fully adopt the DTZ brand name from Autumn 2007.

Headquartered in London, Donaldsons employs 690 staff in the UK and 220 on continental Europe, a total of 910. It provides property advisory services across a broad range of clients in the UK and continental Europe. For the year ended 30 June 2006, Donaldsons reported turnover of £62.9 million (of which £52.2 million related to the UK) and profit before tax and distributions to partners of £12.6 million (partnership profit). As at 30 June 2006, Donaldsons reported gross assets of £27.3 million.

The key features of the transaction are:

The combination of DTZ and Donaldsons will reinforce DTZ’s position as a top global property consultancy, ranked in the top two in the UK and top three in Europe.

The merger will create a pre-eminent retail property adviser and open up Donaldsons retail and development capabilities to DTZ’s capital markets strength and mutually reinforce many other practice areas.

The merged firm is believed to be UK market leaders in several key disciplines:

Retail – capital markets, shopping centre leasing, development, set up advisory, management and valuation; Central Business District offices in most city centres, with a comprehensive regional network; Valuation; Property management across all sectors; Major city centre regeneration and development; and Local Authority property consultancy.

The businesses have relatively little overlap and, while there should be some cost savings, synergies are expected to arise principally through additional revenues.

With a strong cultural alignment, team-orientation and shared vision for the future, the combination will provide significant opportunities for staff in both businesses to benefit from the broader combined platform and reinforces DTZ’s stated mission of working with clients to create leading edge property investment and business solutions worldwide based upon local knowledge.

The transaction is expected to be broadly earnings neutral in the period to 30 April 2008, given the integration costs, and then strongly earnings enhancing for DTZ thereafter. The initial consideration is being satisfied by the payment of £20.4 million in cash, the issue of 1,714,484 ordinary shares in DTZ Holdings plc and the issue of £10.1 million of DTZ convertible loan notes. The deferred consideration will be satisfied by the payment of up to £5.4 million in cash, the issue of up to a further 285,516 ordinary shares in DTZ Holdings plc, and up to £1.9 million of DTZ convertible loan notes. A further payment of up to £5.0 million in cash may be made to the seller by way of a future share of payments in respect of a carried interest in an existing fund that Donaldsons helped to develop.

The DTZ convertible loan notes are convertible into either ordinary shares in DTZ Holdings plc (the number of which will be determined by the DTZ share price at the time of conversion) or satisfied by cash or by a mix of the two, in each case at DTZ’s discretion. They bear a coupon of 5% per annum, commencing on the first anniversary after completion. DTZ may redeem the DTZ convertible loan notes at the time of its choosing, subject to 50% of the loan notes being converted within two years of completion and the remainder within three years of completion.

All 33 equity partners of Donaldsons will join DTZ, taking up positions as directors across the combined organisation. Martyn Chase, Donaldsons chairman, will chair DTZ’s UK Retail Division and oversee the development of DTZ’s Retail practice across EMEA. Donaldsons chief executive, Peter Mawson, will take a leading role in achieving the successful integration of Donaldsons with DTZ. Both Martyn Chase and Peter Mawson will join DTZ’s EMEA Executive & Strategy Group and its UK & Ireland Executive Committee.

Commenting on the transaction Mark Struckett, group chief executive of DTZ, said: “This transaction marks another significant development for DTZ, our clients and our shareholders. It further enhances our position in Europe as one of the leading global property consultancies. The combination of Donaldsons with DTZ provides an excellent strategic fit, which both increases and diversifies earnings. We see close cultural alignment and, while Donaldsons will provide opportunities to develop the combined business across all sectors of the market, the strength that Donaldsons brings in the retail segment is of significant importance to us within the UK and continental Europe. We welcome Donaldsons into DTZ and look forward to combining our activities to provide our collective clients with a truly outstanding breadth and quality of service.”

Donaldsons chairman Martyn Chase added: “This transaction represents a tremendous opportunity for both businesses and our clients. For Donaldsons, it enables us to safeguard our market leading position within the retail property sector and also to grow our wider business faster both in the UK and in continental Europe. We look forward to working with DTZ’s global platform and enhanced capital markets capability to the benefit of our clients at every stage of the development cycle.”