Knight Frank and Bayleys enter McGrath acquisition talks

In an announcement to the ASX this morning, McGrath revealed that its board had unanimously approved a proposal, whereby McGrath has entered into a Scheme Implementation Deed with RPAA Holdings Pty Ltd, an entity that is equally owned by Knight Frank Australia Holdings Pty Ltd and Bayley Corporation Limited’s subsidiary, BCL Aus Holdings Limited.

What that means is that Knight Frank and Bayleys have agreed to acquire 100 per cent of the share capital of McGrath by way of scheme of arrangement.

The ASX statement explained that the board of McGrath, who in aggregate hold or control approximately 48.1 per cent of issued McGrath shares, unanimously recommends shareholders vote in favour of the scheme, with approval of McGrath shareholders at a scheme meeting necessary for the acquisition to go ahead.

If the scheme is implemented, McGrath will be delisted from the ASX, with implementation expected by 30 June 2024 if all conditions are satisfied.

Under the scheme, McGrath’s shareholders will have the option to receive $0.60 cash per McGrath share or unlisted scrip consideration, or a combination of both.

Founder and chief executive officer of Mcrath, John McGrath, has revealed his intention to elect to receive the unlisted scrip alternative for all his McGrath shares (which is approximately 23.3 per cent of all shares on issue). He is set to continue in the role of CEO and managing director of McGrath, with the support of management, upon implementation of the scheme.

As for his own role within the business, he told REB: “I’m not going anywhere for the rest of my life.”

Commenting that he is “incredibly excited at the possibility of partnering with two of the world’s great real estate brands”, the CEO remarked that the alignment would allow him to continue reaching for his goal, alongside the management team “of making McGrath Australia’s leading real estate brand”.

Explaining to REB that the potential partnership is “is a marriage made in heaven”, he said that if the scheme does get up, he thinks “it’ll be a great benefit to all our stakeholders”.

“For the people selling properties and renting properties, having a connection to a global reach, such as we’ve got with Bayleys and Knight Frank, is incredibly valuable.”

He expressed that the business is “delighted to have received this offer from a consortium comprising a leading global property firm in Knight Frank, which has a strong residential real estate offering throughout the world, and leading New Zealand full-service real estate agency in Bayleys”.

“Together we share common values and cultures and see the potential partnership with McGrath as a positive development for our industry, and for McGrath agents and team members, our franchise partners and customers, who will benefit from the consortium’s global networks, access to high-net-worth clients and real estate expertise in support of our vision and growth plans.”

“You can’t want for a better partnership and a better network than these guys bring to the table,” he also told REB, outlining that operations would remain "business as usual" for the brand.

"We don't anticipate any immediate change at all to the way we run the business," he did point out, before acknowledging that "as we receive the benefits of working closely with our partners, no doubt there'll be a great exchange of ideas between the various brands."

Knight Frank chief executive officer of Australia, James Patterson, has also expressed excitement at the prospect of a potential Knight Frank and Bayleys partnership with McGrath.

He remarked that the acquisition would allow Knight Frank to have a leading position in residential and commercial real estate in Australia, “creating a full service real estate capability to support and advise clients and customers”.

Outlining that the partnership would see all brands operating as “business as usual”, Patterson said working together, “these teams will create a powerful combination of local expertise with global reach, which will generate enormous opportunity for McGrath and its customers”.

Bayleys managing director, Mike Bayley, views the partnership with McGrath and Knight Frank “as a collaboration of leading real estate companies servicing markets on both sides of the Tasman while providing unprecedented global reach”.

He noted “the ability to share ideas and innovations as well as systems and information will add considerable value to our clients across Australasia”.

“We believe that, as a consortium, Knight Frank and Bayleys are the best partners to ensure McGrath is well positioned to realise its long-term strategic objectives and capitalise on its next phase of growth,” Bayley stated.

McGrath shareholders do not need to take any action at the present time, but McGrath chair Peter Lewis said the board’s view “is that the scheme represents an excellent outcome for McGrath shareholders, customers, our agents and staff”.

He said: “The scheme consideration is at a significant premium to historical trading prices, offering McGrath shareholders with certainty of value and the opportunity to realise their investment in full for cash.

“It is pleasing to see that Knight Frank and Bayleys share a similar business ethos and approach to McGrath, and I see this as a positive development for the McGrath senior management and team members who will continue to be led by its founder and CEO John McGrath,” the chair said.

For McGrath himself, “if I had a magic wand and I could name the two best brands on the planet for McGrath and for Australia in terms of proximity of Bayleys and the leadership position they hold in New Zealand and the global domination of Knight Frank, it’s really ideal.”

“The world’s becoming a smaller place. People have homes in New York and London, and Sydney and Melbourne. So being a part of an international network gives us extraordinary capability that we don’t currently have. It’s been very well received by our team,” he commented.

“I couldn’t think of two better partners to be involved with, to be quite frank,” McGrath concluded.