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JLL to Boost Capital Market Business With HFF Acquisition

Zacks Equity Research
The broad-market S&P 500 Index and tech-laden Nasdaq Composite closed at an all-time high level yesterday.

In an effort to substantially boost its full-service Capital Markets business, Jones Lang LaSalle Incorporated JLL — popularly known as JLL — has announced that it will buy HFF, Inc. (HF), in a cash-and-stock deal, valued at about $2 billion. The acquisition, expected to close in the third quarter of 2019, will be accretive to adjusted earnings per share in the first full financial year after completion.

Notably, HFF offers clients a fully-integrated capital markets platform, including debt placement, investment advisory, equity placement, funds marketing, M&A and corporate advisory, loan sales and commercial loan servicing. The company has closed more than $800 billion in excess of 27,000 transactions since 1998 and generated revenues of more than $650 million in 2018.

Its acquisition would help JLL enhance its U.S. capital markets presence at a rapid pace and fortify growth of the company’s debt advisory business in Europe and Asia Pacific. The combined entity is projected to deliver significant run-rate synergies, estimated at around $60 million, over two to three years.

Deal Terms

As per the terms of the agreement, HFF shareholders will get $24.63 in cash and 0.1505 JLL shares for each HFF share they hold. The cash-and-stock consideration results in a total offering price of $49.16 per HFF share based on the closing price of JLL stock of $163.02 on Mar 18, 2019. This denotes a 5.7% premium to the HFF’s Monday close.

The move would result in JLL shareholders owning approximately 87% of the combined company, while the remaining 13% will likely be owned by HFF following the closing. JLL plans to fund the cash part of the deal with a mixture of cash reserves and its existing syndicated credit facility.

Moreover, HFF’s CEO — Mark Gibson — will join JLL as CEO, Capital Markets, Americas, as well as the co-chair of its Global Capital Markets Board. Furthermore, JLL expects to add one of HFF's current directors to JLL's board of directors effective as of the closing of the deal.

The transaction has already received the approvals of boards of directors of both companies, and is now subject to HFF shareholders’ approval and customary closing norms, including regulatory review. In addition, all seven executive committee members of HFF have settled to vote their shares, denoting 3% ownership of the company, in favor of the transaction.

Our Take

Admittedly, JLL has a diversified product & services range which helps register balanced revenue growth across its operating markets. Also, spate of strategic investment activities, in a bid to capitalize on market consolidations, are anticipated to boost its long-term profitability. In fact, market-share expansion will help JLL achieve stellar growth and a decent cash level, aiding consistent and timely deleveraging.

JLL currently sports a Zacks Rank #1 (Strong Buy).

Other Key Picks

Investors interested in the real estate industry can consider some other similarly-ranked stocks like Colliers International Group Inc. CIGI, CBRE Group Inc. CBRE and FirstService Corporation FSV. While Colliers International and ABRE Group currently flaunt a Zacks Rank of 1, FirstService Corporation has a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Colliers International’s Zacks Consensus Estimate for 2019 earnings moved 4.6% north to $4.59 in two months’ time.

The current-year earnings estimates for CBRE climbed 3.5% in a month’s time to $3.57.

The Zacks Consensus Estimate for FirstService Corporation’s 2019 earnings moved up 1.7% to $3.01 over the past two months.

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