Forget capital markets, M&A is where the action is

EDITOR’S COMMENT It may well have been a quiet 2023 for deals, with figures from Cushman & Wakefield this week revealing that a 41% drop in capital markets revenue had pushed the agent to a $34.5m (£27.3m) loss for the full year. But 2024 certainly doesn’t look like it is going to be a quiet year for M&A deals activity. The stock markets have been awash with activity in the first eight weeks of 2024, beginning with LondonMetric and LXi agreeing their £4.1bn merger in January. Since then we have seen Tritax Big Box REIT table an offer to buy UK Commercial Property REIT, Blackstone bring its Industrials and St Modwen Logistics businesses together and Custodian agree an all-share merger with Abrdn Property Income Trust, only to be potentially gazumped by Urban Logistics REIT this week.   Custodian had agreed a 52.4p per share deal will API before Urban Logistics claimed it was the better suitor with superior knowledge of API’s £315m industrial and retail warehouse portfolio. It claims there are “compelling reasons” that its offer should be selected. It is unlikely to be the end of the battle there too. Will more throw their hats into the ring? Will Custodian fight back? Will neither deal happen and shareholders opt for a wind-down instead? The listed sector is no place for relatively small businesses these days. Scale is everything.  Late last year, TR Property Investment Trust’s Marcus Phayre-Mudge warned that smaller listed REITs trading at hefty discounts to their net asset values would be ripe for takeover, predicting amalgamation among REITs with market caps of £200m-£500m. “If the stock market is going to be too miserable about real estate and allow the share prices to drift to these big discounts to the asset value, then private capital will come in and take them out,” he told EG last November. And that private capital is still pretty bullish on sheds. The growth of AI, human beings’ continuing desire to buy things online, even the onshoring of manufacturing, all help to underline the security of investment in industrial. That plus the continuing supply and demand imbalance make sheds sexy. Just look to the most recent set of accounts from shed giant SEGRO. The firm reckons it can boost its rent roll by 50% over the next three years as occupier demand grows and it pushes up rental tone. Chief executive David Sleath believes 2024 could be a “really good vintage” for industrial. Sleath doesn’t seem too worried about recent M&A activity creating several potential competitors for the UK’s biggest listed industrials REIT, however. “Investors increasingly want specialist vehicles where they focus on one thing and doing that one thing well, but scale matters in terms of being relevant to the investor base and having liquidity,” Sleath told EG. “So, I can see why a number of other people are looking to consolidate and grow. “I think we are in a relatively advantageous position in that we have grown. We have around £20bn of assets under management across the group, so we have the benefits of scale and relevance in all the markets we are operating in.” Sleath is unfazed, but you cannot help wondering if he ever thinks a Blackstone or some other private equity giant might come knocking. SEGRO is definitely no minnow, but with a market cap of just over £10bn, assets under management of £20bn and an “exceptional” development landbank, you can never say never, right? Especially when logistics remains a high-conviction theme for many global investors.   So, who cares if capital markets remain a little in the doldrums, as it looks like it is shaping up to be an active year in M&A. We’d better buckle up.