Colliers International Group Inc.
(CIGI-N, CIGI-T) US$112.42 | C$141.03
Record Pace of Capital Deployment Continues with Versus Deal Event
CIGI acquired 75% of Versus Capital (TD estimates >$320mm paid), a U.S.-based alternative real asset manager with ~US$6bln of AUM and $40mm-$45mm of adjusted EBITDA (~7% of CIGI's consolidated TTM EBITDA) (first look here).
Impact: POSITIVE
Versus is Colliers' fourth IM transaction in under 12 months and takes the segment to ~30% of consolidated EBITDA (peers <15%). Beyond the obvious benefits of bolstering CIGI's recurring revenue and margin mix, we are attracted to Versus' team of registered investment advisors, which are focused on providing private-wealth clients exposure to alternative investment managers. We understand that this customer segment represents a huge market, and presents a unique asset accumulation opportunity to augment CIGI's institutional strategy of building out its asset class expertise (e.g. credit and infrastructure) and subsequently cross-selling its investor base.
More broadly, we are encouraged by Colliers' continued aggressive capital deployment, approaching $1.0bln this year, in the face of the current challenging macroeconomic headlines, and believe that it highlights management's confidence in the company's resilient/recurring EBITDA mix (~58% pro forma, on track with the 2025 target of >65%). Furthermore, we believe that the recently completed acquisitions effectively lock-in a pipeline of organic growth opportunities (cross- selling, combined with scale and resources), which could allow CIGI to continue outperforming, even in light of any potential weakness in sales brokerage activity (~25% of EBITDA). In our view, CIGI's current valuation reflects an arguably extreme downside scenario for its brokerage operations, which we estimate values the business at ~4.0x EBITDA under a sum-of-the-parts analysis (basis 15.0x/11.0x for IM/O&A, respectively). Furthermore, we highlight the continued recovery of pent- up leasing demand, infrastructure tailwinds for engineering and stable property/ project management revenues as offsets, not to mention CRE's strong historical performance as an inflation hedge (both rents and asset prices).
TD Investment Conclusion
We acknowledge the headwind posed by rising interest rates for CRE and fears of a potential recession, but we believe that the stock offers a compelling risk/reward trade-off, particularly for investors with a long-term focus. We continue to be attracted to Colliers' large and highly fragmented markets, demonstrated ability to add value through M&A, and improving mix of recurring revenues.