CALA announces Patron and Legal & General to acquire the Group

CALA Group Limited, the UK's premium major home builder, today announces that it has reached an agreement with Patron Capital Partners and Legal & General Group plc, under which they will acquire the Group.

CALA Group. 18 March 2013

The investment by both Patron and Legal & General illustrates their confidence in the Group's future prospects and provides CALA with a strong platform for growth, through greater balance sheet capacity and the funds to add significantly to its existing land bank. This platform will enable the Group to build on the positive momentum it has generated in recent years, with a medium term aim of increasing the size of the Group substantially.

Under the terms of the agreement, Legal & General and Patron will each take a 46.5% equity stake in CALA alongside CALA's existing senior management team who will take a 7% share. The transaction comprises £140m of equity, and £70m of debt, valuing CALA at £210m. Patron will lead the investment and both Legal & General and Patron will have a representative on CALA's Board going forward. Lloyds Banking Group will continue its support of the business with a new £100m five year banking facility.

CALA's premium market positioning and presence in more affluent areas of the UK such as the Home Counties, The Cotswolds and around Glasgow, Edinburgh and Aberdeen enabled the Group to return to profitability in 2011 for the first time since 2007, one year ahead of management's plans. In 2012, the Group announced a six fold increase in profitability to £11.4m on a pre-tax basis for the 12 months to 30 June 2012 alongside a 35% rise in completions to 875 homes and a 16.4% house sales gross margin, up from 14.8% the previous year.

At the half year ended 31 December 2012, home completions were up 13% on the equivalent period last year, while pre-tax profits were £9.6m and the house sales gross margin was 19.7%, up 5.9% on the previous year.

Current trading

The Group's trading performance during the first eight weeks of 2013 has been exceptionally strong with increased private home sales up 34% to 154 (2011: 115) at an average selling price of c.£330,000, consistent with the sam period last year. Average sales per site per week are up 31% to 0.72 for the eight-week period (2011: 0.55).

At 28 February 2013, CALA's land bank stood at 9,900 owned and contracted plots with a potential gross development value of £3.1bn, equivalent to approximately 10 years' output on current projections. In addition, the Group controls a longer term strategic land bank comprising c.5,400 plots.

Alan Brown, Chief Executive of CALA, said:
"Today's investment represents a significant step forward for CALA and we are now poised for the next phase of our growth. By selecting Patron, one of the leading European real estate private equity houses, and Legal & General, to support the Group in the next stage of our development, we have secured the backing of two highly respected investors who both share our vision for the business. I am also delighted that CALA's excellent relationship with Lloyds Banking Group will be continuing and look forward to their ongoing support as we deliver the next phase of CALA's growth strategy.

"Having invested heavily in growing our land bank since 2010, we are now very well positioned to grow the business significantly over the next five years. From our perspective, the timing of this transaction is perfect and I am tremendously excited about what this deal means for our business as we look forward to a long and fruitful relationship with Patron and Legal & General, both of whom share our values and are passionate about this new partnership."

Commenting on the investment, Keith Breslauer, Managing Director of Patron said:
"This significant transaction for Patron highlights our confidence in CALA, its growth potential and the Group's competitive position in the UK housebuilding sector, which is one of the key areas of focus for the economy due to its ability to create jobs and fuel economic growth.

"A continued undersupply of new housing in the UK, coupled with the availability of land at a lower point in the cycle and legislation to promote development, creates a favourable backdrop for this deal. We have a strong track record of investing in sites across the UK through healthcare, hotel and leisure businesses including Powerleague and Luxury Family Hotels, and are confident that our financial backing and expertise will enable us to work with the existing strong management team to capitalise upon CALA's strong brand.

"We are delighted to be partnering with Legal & General on this deal and look forward to working with their experienced team as we position CALA for ambitious growth in the medium term."

Commenting on the investment, Wadham Downing, Group M&A and Strategy Director, of Legal & General said:
"We are very excited to have invested in CALA alongside Patron and CALA's experienced management team. We are confident that with this combined expertise and financial resources that both Patron and Legal & General bring, we can build many more homes in the UK and help CALA grow and realise its potential.

"At our preliminary results we identified direct investment as one of our five drivers of growth. We are delighted to announce an acquisition in this area as our first M&A transaction for some time. We will continue our evolution as a Group by combining our strength in organic growth with selected bolt-on acquisitions, which satisfy our strategic and financial criteria, across each of the five areas identified."

Anthony Fry, Chairman of CALA, added:
"I would like to thank Lloyds Banking Group for its support for the Group since its restructuring. I should also like to thank my fellow board members, Michael Freshney and Michael Pacitti, who have provided the Group with significant help over recent years and who will be retiring from the Board on completion of the new investment.

"The Board joins me in thanking all our hard working employees who have continued to drive the business forward despite the inevitable distractions involved in a transaction such as this."

Mark Prentice, Area Director East of Scotland for Lloyds Commercial Mid Markets, said:
"Lloyds Banking Group has a long standing relationship with CALA and this new growth strategy will significantly strengthen CALA's balance sheet and put the business in a strong position to benefit from the more stable housing market. The house building sector is of vital importance to the UK economy and Lloyds Banking Group is committed to supporting its growth whether that be supporting housebuilders like CALA or the £6.5bn we have pledged to lend to first time buyers to help them get on the property ladder."

Rothschild, KPMG and Ernst & Young acted as financial advisers to the transaction, while Dundas and Wilson, Pinsent Masons LLP, DLA Piper and Hogan Lovells acted as legal advisors.