Morningstar | Jones Lang LaSalle Acquires HFF in Bid to Bolster its Capital Markets Business; Shares Fairly Valued
Jones Lang LaSalle announced this morning that it is acquiring brokerage HFF in an approximately $2 billion deal. The transaction, which is expected to close in the third quarter of 2019, includes a combination of cash and stock, representing a slight premium over HFF’s share price as of market close on March 18. As part of the deal, shareholders of HFF will receive $24.63 in cash and 0.1505 Jones shares for each share of HFF owned. Management is pursuing this acquisition to help grow its Capital Markets business, which it has previously indicated it aims to double by 2025.We think the deal makes sense for Jones from a strategic perspective but are slightly concerned that it is pursuing this acquisition deep into an economic boom. Although the offer price only represents a slight premium to HFF’s recent share price, this fails to take into consideration the significant run up in price that the stock has seen recently. Since the Capital Markets business is inherently transactional, we worry that the purchase price may prove lofty should the economy sour in the near term. That being said, we do think Jones could benefit from boosting its market share in Capital Markets, especially considering the company's current position with respect to its peers. Based on a ranking by TheRealDeal, Jones was in seventh place in terms of 2018 commercial property transaction volume in New York City, with HFF achieving a fourth-place position in that same ranking.
As a part of the March 19 announcement, management indicated that the cash portion of its transaction will be funded by a combination of cash reserves and an existing credit facility. Given Jones' low leverage ratio, we think the company can pursue this deal while still maintaining a healthy balance sheet. After taking into consideration this confluence of factors, we expect to maintain our fair value estimate for wide-moat Jones Lang LaSalle at $185 per share.
Jones Lang LaSalle is a professional services firm that engages in real estate and investment management. The company delivers an array of services across four business segments. The company manage its Real Estate Services offerings across three geographic business segments: the Americas, Europe, Middle East and Africa (EMEA), and Asia Pacific, and the company manages its investment management business globally as LaSalle Investment Management. In its Americas, EMEA and Asia Pacific operating segments, the company provides a range of leasing, capital markets, integrated property and facility management, project management, advisory, consulting, valuations and digital solutions services.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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