JLL CEO Christian Ulbrich didn’t exactly say Cushman & Wakefield wasn’t worth a page out of its checkbook. But the executive did throw shade on a pipeline of M&A deals rumored to include JLL’s smaller rival.
“The opportunities are increasing quite significantly at the moment,” Ulbrich said during the brokerage’s third-quarter earnings call Monday morning.” At the time we haven’t seen anything we think would be worth spending our shareholder’s money on.”
The statement came after JLL was said to be in discussions with Cushman about a potential acquisition, and as M&A activity in the commercial real estate brokerage industry is on the rise.
JLL and Cushman had reportedly been in talks recently about a potential merger, according to a recent news story. One source at JLL confirmed to The Real Deal that the talks had taken place. Cushman also reportedly made an offer to buy Newmark, which the latter rejected. And Marcus & Millichap recently inked a deal to buy Mission Capital Advisors.
Cushman’s large debt load, however, poses a complication for any potential tie up. The company’s debt of $3.2 billion exceeds its market cap of $2.8 billion. And the company’s earnings are trending in a direction that could trigger a technical default under the loan agreements.
JLL is a much larger company with a market cap of nearly $6.3 billion and also has a stronger balance sheet with a lower debt-to-earnings ratio. On Monday’s call, JLL CFO Karen Brennan said the company reduced its net debt by $320 million in the third quarter, bringing the company’s borrowings down to the level they were prior to JLL’s acquisition of the brokerage HFF in 2019 for $2 billion.
JLL’s earnings for the third quarter declined 19 percent compared to the same time last year to $244 million, driven by large declines in its leasing and capital markets businesses.
One financial indicator did, however, show improvement. The company’s EBITDA margin — a measure of earnings to revenue that filters out some financial variables — increased by 90 basis points to 17.4 percent.
JLL executives said the increase was due largely to layoffs and the benefits of government relief programs tied to Covid-19. The company in mid-October went through a large round of layoffs, as TRD reported last week.
Brennan said the company realized about $135 million in savings from reduced salary and benefits, 50 percent of which came from its Middle East region and 40 percent from the Americas.