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Thursday, 2 July

GWS - Potential Sale is a Global Workplace Solution Boost to All

Back in October, ThisWeekinFM heard the rumour that there were three potential bidders for the massive Johnson Controls' Global Workplace Solutions FM business but none of those have stepped forward (Carillion, ISS and Emcor). In the last few days two more bidders have been suggested Brookfield and CBRE. Reuters financial has suggested that Los Angeles founded global managing agent CBRE is the front runner with a bid already placed.

ThisWeekinFM believes this to be conjecture - Global Workplace Solutions (GWS) has a wild valuation variance - $600 million to $1.5 billion and Brookfield has only just completed a purchase of GWS in Australia & New Zealand and Canada (which started out as a merger in 2012.)

Johnson Controls, which got into FM donkey's years ago because (surprisingly enough) it makes building control systems amongst others has seen GWS contribute 10 per cent of its turnover. Shareholders, however, see that Johnson's fortunes lie in the manufacture and distribution of controls  particularly in the automotive industry - where it is a profitable giant. And not in the FM market where turnover is not matched by margin - figures to June 2014 show it made 1.7 per cent. Since the announcement that it would get rid of GWS (without any positive bidders - which shows how loathed it was by shareholders), Johnson Controls stock has trader significantly higher. The money from any sale will be ploughed back into 'core business'.


So why would anyone want to take on a business  where the profits are small and have the potential to drag the overall profitability ratio of a much larger group down - which might in turn make it unattractive to investors?

Well, we can see that for some of the rumoured buyers in October, taking on low margins (and by the way, GWS had also lost some sizeable contracts) and fighting to drag them back up might not have been attractive - especially if some of the retained contracts were to come back out for tender.


But CBRE and Brookfield are different entities.

Brookfield is a global property managing agent with a net income for 2014 of $5.2 billion. It declared in January this year that it intended to establish a global facilities management business having taken the Canadian and Australian & New Zealand parts of Johnson Controls that it had merged with (to form Brookfield Johnson Controls) in 2012.

Meanwhile, CBRE is the clearly defined global leader in property asset management - and when I say global...I mean global. The company is huge. And more to the point it too has bought into the FM side of the business. It took the UK's Norland (commercial building technical engineering services) for $400 million (with up to $80 million of deferred contingent consideration in the later part of 2013 (confirmed early 2014). The company did not seem to care that the new CBRE Norland might be shunned by competitor managing agents.

That is not to say that any owner would not want to develop its FM offering to the widest possible set of buyers - private and government. But it is to say that that is not necessarily where the big money is.


Sea change

Here is the nub of the matter - global managing agents are more concerned with what an FM business can do for them. In a field that is highly competitive but where profits are huge, having the edge on competitors is the key...a key that can be worth the billions property owners, investors, pension fund managers and the like are willing to spend to secure the highest rents - and thus the highest return on investment. In October we reported that fund managers had committed to the UN in reducing the carbon footprint of $100 billion dollars worth of property - who better to act as managing agent on those properties than a company boasting an energy management FM expertise. GWS provides facilities and energy management for more than 1.8 billion square feet of corporate real estate worldwide already.

And if the property industry, in its truest sense, is finally coming back round to seeing that FM should not be a low price/cut the price service that is rarely seen and never heard - but is in fact a driver of huge revenue and workplace productivity, then it can only be a good thing for the whole industry as far as I'm concerned.

Brian J. Shillibeer, Chief Correspondent


Picture: Taken when Brookfield Asset Management Inc and Johnson Controls agreed to merge their Australian and New Zealand property and facility services operations to create Brookfield Johnson Controls.

Article written by Brian Shillibeer


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