International investors have signalled confidence in the outlook for the Scottish housebuilding market by acquiring a major player in the country in a bumper deal.
The Sixth Street Partners and Patron Capital investment firms have bought Cala Group from pensions giant Legal & General for £1.35 billion.
Cala was founded in Scotland in 1875 and is working on housing developments across the country.
The sale will support new Legal & General chief executive António Simões's plan to simplify the group and to increase returns to shareholders.
It comes three months after Legal & General was reported to have put Cala on the market.
Efforts to sell the business were complicated by the slowdown in the housebuilding market that followed moves by the Bank of England to increase borrowing costs to tackle the surge in inflation that started amid the recovery from the pandemic.
READ MORE: Cala sees profits plunge after mortgage costs hit demand for homes
Last month Legal & General revealed that profits fell by around 40% at Cala in the year to June 30, to £42 million, from £68m in the preceding year. It cited the impact of the higher interest rate environment and planning delays.
However, Cala is reported to have attracted interest from a range of bidders including housebuilding giant Persimmon.
The interest suggested bidders had confidence in the long term prospects for the firm and by implication the UK housing market. Cala also has operations in South East England and the Cotswolds.
The Labour Government has made it a priority to increase housebuilding activity amid a shortage of new homes in the UK.
Keith Breslauer, Managing Director of Patron Capital said: “Cala is one of the UK’s leading housebuilders with a best-in-class landbank.”
He added: “We look forward to working closely with Cala’s impressive management team and our partner, Sixth Street, to further build the business and help tackle the undersupply of homes in the UK.”
READ MORE: Barratt Developments highlights pressure on new home sales
The deal sees Patron Capital buy into Cala for a second time. The London-based property investment business acquired a stake in Cala in 2013. It sold the stake in Cala to Legal & General in 2018. That deal valued Cala at £605m.
Mr Breslauer said Patron was pleased to be able to back Cala once again.
Julian Salisbury, Co-Chief Investment Officer of Sixth Street said: “Cala has a bright future and we are proud to be entering this new chapter as stewards of a company with such a deep history and long track record of sustainable growth.”
Cala developed out of the City of Aberdeen Land Association, which was founded in 1875.
Legal & General has been able to use its investment in Cala to capitalise on the strong growth seen in the UK housing market during the last decade.
Mr Simões said: “Cala has been an important part of L&G for over a decade, with profits increasing ten-fold since our initial investment in 2013.”
He said the sale of Cala would provide capital to deliver on the group’s strategic goals of sustainable growth alongside enhanced returns for shareholders.
Housing market sentiment has improved following the Bank of England’s decision to cut its base rate by 0.25% in August, to 5%. The cut followed a run of 14 increases that started in December 2021.
However, shares in Legal & General fell 2.7% yesterday. They closed down 6.5p at 221.9p, leaving the group with a stock market capitalisation of around £13.1bn.
The group said it will receive cash proceeds of £1.16bn from the sale of Cala, after adjustment for debt. It will be paid £500m when the deal closes with the remainder payable over the next five years.
Russ Mould, investment director at AJ Bell said : “Investors might be disappointed that it isn’t getting the full £1.16 billion cash up front.”
READ MORE: Scottish investment giant faces huge challenges under new boss
Cala was listed on the stock market before it was taken private by a management team led by Geoff Ball in 1999.
Lloyds Banking Group took a majority stake in the business in 2010 under a debt for equity swap completed following the slump in the market triggered by the global financial crisis of 2008.
Legal & General and Patron Capital acquired Cala for £210m in 2013.
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