BNP Paribas and Strutt & Parker: How’s the honeymoon?

Two years on from their merger, deputy chief executive Etienne Prongué says the pairing is proving to be a happy marriage Etienne Prongué is thinking back to his last interview with EG in early 2018, six months after the merger of BNP Paribas Real Estate’s UK business with agency Strutt & Parker. The deal was a marriage that the market had long expected, he recalls the article noting, but in those early days there were some murmurs that a culture clash between the French and the British could make for a rocky romance. So, two years on from the deal, how is the honeymoon? Prongué, deputy chief executive of the combined business since the merger was struck, is adamant that all is well, although he argues that two years is too short a time frame in which to judge the success of such a transaction. The rationale for the deal still makes sense, he says. The business has notched up several notable wins and, even in an era of unprecedented political turmoil, is firmly committed to the UK. But as in any relationship, he adds, the path hasn’t been entirely smooth. There are plenty of positives, and Prongué, who moved to the UK in 2017 after 12 years in Paris with BNP Paribas Real Estate, describes himself as “super proud” of what the business has achieved. Looking at third-quarter numbers and the firm’s pipeline for the final months of the year, he expects to bill roughly the same across leasing and investment transactions in 2019 as in 2018, despite a tougher market. The firm has led two of the biggest leasing deals in London so far this year, with the European Bank for Reconstruction and Development signing up for 360,000 sq ft in new headquarters at 1-5 Bank Street in Canary Wharf, E14, and co-working group WeWork subletting 285,000 sq ft from the European Medicines Agency at nearby 30 Churchill Place. The teams have also made strides in the regions – a 203,000 sq ft leasing to software company Sage in Newcastle is the largest office letting deal ever in the North East, Prongué says by way of example. BNP Paribas Real Estate in the UK – in numbers 1,500 employees 67 offices 7 commercial business lines His goals now include boosting the firm’s standing on the sell side of transactions and, in London, targeting larger floorplate deals in the West End market. “In the UK, we have never had more strength and depth than we have now,” he says. These kinds of ambitions were at the heart of BNP Paribas Real Estate’s decision to use M&A to bolster its UK business, Prongué says. “For us, [the deal] was about a growth opportunity within the UK,” he adds. “We have dominant market positions in France and Germany, and the UK is the biggest market in Europe. If you take the French, German and UK markets, depending on where you are in the cycle, they will account for 65-70% of the whole European market. “So, for us, the core is those three countries. Building our business here in the UK was a key strategy.” Managing mergers Prongué was not involved in negotiating the Strutt & Parker merger but has been hands-on since it was sealed, working through joining the two businesses together. The operational integration of an acquisition or merger – joining up the companies’ systems and processes – can offer some quick wins, he says. “We had a strategy of doing that as fast as possible, so that we could get the business concentrating on its normal day-to-day activities rather than integration,” he says. “That bit was all completed last summer.” The people side is both more important and potentially more problematic. “If you think of a business like ours here in the UK, it’s an advisory business,” Prongué says. “We have nothing apart from people. We don’t have any machines, any factories. We just have people, and therefore being able to merge that piece together and make the most of that has been our clear priority.” But joining up two workplace cultures is a tough task. In BNP Paribas itself, Prongué says, older members of staff will still talk of their time with Banque Nationale de Paris or Paribas, almost two decades on from the pair’s merger. “The cultural piece takes years,” he says. “These things do take time to get through. So I think how you judge yourself on that is, you take a longer spectrum. But there are certain parts that have been a challenge.” If you take the French, German and UK markets, depending on where you are in the cycle, they will account for 65-70% of the whole European market. Building our business here in the UK was a key strategy The challenging part has not been a clash of French and British cultures, says Prongué, who has a French father and English mother. “Our business here in the UK is a British business and Strutt & Parker was a British business. There are probably five French people within this business, of which I am one, so it was really two British companies.” Rather, the deputy chief executive adds, the corporate cultures have been the sticking point, specifically bringing Strutt & Parker, a partnership, into the broader corporate set-up of BNP Paribas Real Estate. “The challenge for me has been more to do with how you merge a partnership into a corporate,” Prongué says. “That’s far more challenging because there’s a fundamental change in the way a business is run. Strutt & Parker was a bigger business in the UK than BNP was. So there was quite a lot of change required from senior management to fall into a corporate.” He adds: “You’ve got to remember that we’re not just BNP Paribas Real Estate as a corporate, we are actually owned by a bank – which is again a certain level more corporate than perhaps some of our competitors. So taking people on that journey and getting them to understand that has been the main challenge that we’ve had.” A senior figure in London’s investment community, unlinked to the deal, says that, from the outside, the bringing together of BNP Paribas’ institutional culture with the “go-getter brokerage” vibe of Strutt & Parker has looked like a “disaster”. Others point to the exits of Strutt & Parker staff, including national office investment director Simon Bland and head of commercial markets Damian Cronk, as suggesting that the transaction has not gone as smoothly as some might have liked. Prongué denies that departures have been a problem. Of 51 Strutt & Parker partners to join BNP Paribas Real Estate with the merger, 44 remain two years on, the firm says. “It’s fairly normal with integrations of this size that you lose people along the way,” Prongué says. “It’s unfortunate, but I don’t think this is anything different from what’s happened hundreds of times before with other businesses.” [caption id="attachment_1000143" align="aligncenter" width="847"] 1-5 Bank Street, Canary Wharf, E14[/caption] Brexit and beyond Now Prongué and his colleagues are gearing up for the next chapter of BNP Paribas Real Estate’s growth in a post-Brexit UK. Prongué expects the UK to leave the European Union with a deal, but when he speaks with EG, the most recent analysis he has been passed from colleagues elsewhere in the firm estimates a 50% chance of no deal. Either way, he remains confident in London’s future, pointing out that Brexit had not deterred the firm from agreeing the Strutt & Parker merger. “[In 2017] the referendum result had already happened and we were still confident to make an acquisition – a big acquisition for our company,” he says. “The reason for this is that the opportunity here in the UK for us is huge. Quite simply, it’s where we’ve got the most growth potential for our business, and we want to take advantage of that. The day after Brexit – whether you have soft, hard, no deal, whatever it may be – all the buildings will remain here. I’m not sure you’re going to find many investors who would bet against London either.” Prongué continues: “Obviously, as a business we have to plan ahead. We did the majority of our planning in 2018. We did our soft [Brexit plans], we did our hard. We went back to the table again this year as the no-deal option started coming forward, which was a new scenario.” The challenge for me has been more to do with how you merge a partnership into a corporate – that’s far more challenging because there’s a fundamental change in the way a business is run If the UK crashes out of the EU, different parts of the UK business will be affected in “radically different ways”, Prongué says. “The majority of our business will be fairly stable in terms of property management, lease advisory, valuation, building surveying, rural, planning. The bits which could have more short-term turbulence would be things that are led around transactions, which would be residential estate agency and investment transactions and leasing.” Future ambitions Prongué will be front and centre as the business works its way through Brexit and beyond. A former Strutt & Parker employee says there is some gossip that the deputy chief executive is preparing to take over the reins from chief executive Andy Martin, who was senior partner at Strutt & Parker. “I’ve had a huge amount of opportunity given to me since I’ve been here,” Prongué says when that piece of market chatter is put to him. “Not just here in the UK, but since I arrived at BNP Paribas Real Estate… If I get a chance to take a more senior leadership role then I’d be delighted. “The UK is in a complicated political environment,” he adds. “Andy is a well-weathered man in terms of experience, and he has been helping and assisting me here in the UK to develop and go forward. Right now [a change of CEO] is not on the plan. But it’s something I’ve thought about before. I’m bound to.” Prongué catches himself. “I’ll stop there,” he laughs. “I normally talk about these sorts of things with my wife. You’re not quite there yet.” To send feedback, e-mail tim.burke@egi.co.uk or tweet @_tim_burke or @estatesgazette