HBOS has demonstrated its continuing appetite for housebuilders with a bid for Crest Nicholson.
The bank, together with West Coast Capital, the investment vehicle for Sir Tom Hunter, approached Crest Nicholson with an offer of 585p a share, which values the company at £660m. The offer was rejected by the board.
The bid came after HBOS amassed a 27% holding in Crest Nicholson by buying the stake previously held by Gerald Ronson’s Heron Corporation. However Crest Nicholson has always made clear that it does not want to sell, and its last financial statement said it was hoping to deliver £10m of savings through a costcutting programme.
Crest Nicholson is attractive because of its large landbank and its strong foothold in the urban regeneration market.
HBOS is a keen investor in residential property developers. The bank, through its subsidiary Bank of Scotland Corporate, is thought to own a stake in all top 10 listed housebuilders.
Barclays Capital, the investment banking arm of Barclays, was on the losing side in the fight for McCarthy & Stone but last month acquired a 5.98% stake in Taylor Woodrow.
The recent private equity involvement in the sector has prompted speculation housebuilders will be subject a raft of takeovers. Earlier this week the share price of Berkeley Group rose to a record high of 1702p per share fuelled by takeover rumours.
Iain Napier, the outgoing chief executive of Taylor Woodrow believes private equity interest in housebuilders is long overdue.
“Housebuilders have come late to private equity compared to other industries. Housebuilders are basically a list of projects and that lends itself to the entrepreneurial spirit of private equity companies.”
Napier says there are many reasons why residential property developers make an attractive target. “Because there is a very strong asset backing housebuilders, private equity players can leverage off the balance sheet. It also offers a very secure way of securing debt, he explains.
Napier cites the ability to reduce debt quickly if by selling off land as another advantage.
Keith Lovelock, chief executive of McCarthy & Stone, told Building it was the combination of financial success and the potential for future growth had attracted HBOS to the retirement home specialist. “We have had an outstanding record over the past 15 years and on top of this the demographic trend is in favour of future growth in our sector.”
Napier is also keen to highlight the advantages for the housebuilder. “It takes the pressure off the ridiculous accounting pressure where every six and t12 months you have to give results. The natural inclination of the stock market is look for instant results which doesn’t suit housebuilders.” He says the three to five year view of a private equity company is more in line with the financial cycle of housebuilders.