Knight Frank and NZ's Bayleys group partner in $95.5m takeover bid for McGrath

Knight Frank has teamed up with New Zealand’s Bayley Corporation to take control of John McGrath’s eponymous real estate group McGrath (ASX: MEA) in a $95.5 million buyout that is set to shake up the national property sales market.

The McGrath board, which controls 48.1 per cent of the company’s issued capital, has agreed to the consortium’s offer of 60c per share – a 27.7 per cent premium to Friday’s closing price - in the absence of a better offer.

Under the proposal, John McGrath will remain as CEO of the McGrath group and continue driving the company under its new ownership structure.

The company founder plans to roll over his 23.2 per cent shareholding into the new entity as part of a scrip alternative being offered by the consortium.

McGrath highlights the opportunities the takeover will bring to the group with the backing of Knight Frank global residential real estate offering and New Zealand’s largest full-service real estate agency, trading as Bayleys Realty Group.

“Together we share common values and cultures and see the potential partnership with McGrath as a positive development for our industry, and for McGrath agents, team members, franchise partners and customers, who will benefit from the consortium’s global networks, access to high-net-worth clients and real estate expertise in support of our vision and growth plans,” he says.

“My role as CEO will continue and, if the scheme is approved, I look forward to continuing to work with the great team at McGrath but also in taking advantage of the opportunities afforded by international partners Knight Frank and Bayleys.”

The consortium has proposed a cash and unlisted scrip alternative for McGrath shareholders with a successful buyout leading to McGrath shares delisting from the ASX later this year. McGrath shareholders will also be entitled to a permitted dividend prior to implementation of the scheme which is expected to occur before 30 June 2024.

McGrath chair Peter Lewis says the price being offered by the consortium represents a “significant premium” to the company’s historical trading prices, offering McGrath shareholders “certainty of value and the opportunity to realise their investment in full for cash”.

“It is pleasing to see that Knight Frank and Bayleys share a similar business ethos and approach to McGrath and I see this as a positive development for the McGrath senior management and team members who will continue to be led by its founder and CEO John McGrath,” says Lewis.

Shares in McGrath rose as high as 59c in early trading today and were up almost 25 per cent to 58.5c at 11.13am (AEDT).

The McGrath group, which comprises 105 franchise offices and 21 company owned offices in NSW, Victoria, Queensland and Tasmania, posted underlying EBIDTA of $4.8 million in the December half – at the top end of forecasts and up 42 per cent on a year earlier.

The company’s solid earnings performance in FY24 to date was supported by about $26 million in cash at the end of December and no debt.

The proposed permitted dividend will be based on the level of McGrath’s net cash reserves on 31 May 2024, with the deal dependent on cash reserves remaining at $23 million or more after accounting for dividend payments.

Knight Frank’s Australian CEO James Patterson says the acquisition of McGrath will deliver Knight Frank a “leading position in residential and commercial real estate in Australia, creating a full-service real estate capability to support and advise clients and customers”.

“This partnership would see all brands operating as business as usual,” he says.

“Working together, these teams will create a powerful combination of local expertise with global reach, which will generate enormous opportunity for McGrath and its customers.”

Despite a global presence comprising about 600 offices, Knight Frank’s footprint in the Australian market is limited to about 30 offices offering commercial and residential sales and leasing services. The McGrath deal will lift its real estate footprint in Australia more than fivefold.

Bayleys, which was established by the Bayley family in 1973, currently has operations in New Zealand and Fiji with the real estate group teaming up with Knight Frank in 2018.

The McGrath takeover represents an official expansion into the Australian market by the company which is still led by the Bayley family.

“Bayleys views the partnership with McGrath and Knight Frank as a collaboration of leading real estate companies servicing markets on both sides of the Tasman whilst providing unprecedented global reach,” says Bayleys’ managing director Mike Bayley.

“The ability to share ideas and innovations as well as systems and information will add considerable value to our clients across Australasia.

“Bayleys is the largest full-service real estate organisation in New Zealand and has considerable expertise across the residential, commercial, and rural market sectors as well as in franchising.

“We believe that, as a consortium, Knight Frank and Bayleys are the best partners to ensure McGrath is well positioned to realise its long-term strategic objectives and capitalise on its next phase of growth.”

While the McGrath board has unanimously agreed to the terms of the takeover, the final outcome remains subject to shareholder approval.