Why Platinum Equity likes ‘high velocity M&A’ opportunity in UK property services market

Acquisition of Leaders Romans Group amplifies European momentum because of its place in the UK property market

In early March, residential property letting company Leaders Romans Group announced the acquisition of Northfields Holdings, the first acquisition for United Kingdom-based LRG under the Platinum Equity umbrella.

Since that acquisition, LRG has acquired SPL Property Management, GSC Estate Management, and Hose Rhodes Dickson.

The M&A activity is a continuation of the company’s “high-velocity M&A program,” which was cited by Platinum Equity Partner Louis Samson, who oversees the firm’s European operations, when the LRG acquisition was announced in January.

“LRG plays an important role in the UK property market and has grown steadily for decades,” Samson said. “We have spent a lot of time getting close to this sector and are excited about the opportunity to invest in it through the LRG platform, which has a diversified and resilient recurring revenue base. The LRG management team has built an impressive business with a high-velocity M&A program, and we look forward to working with them to take it to the next level. The company will also benefit from Platinum’s operations capabilities and our expertise in digital transformation in particular.”

Aside from the continuation of the robust M&A program, the acquisition of LRG represents a new sector for Platinum’s European investment team. Also specializing in sales and associated professional services, the group has a nationwide network of branches and offices and manages more than 62,000 properties across the UK. LRG was an acquisition by Platinum’s Small Cap Fund, and it continues Platinum’s European momentum.

Platinum’s European portfolio also includes: Spain-headquartered global environmental services leader Urbaser, global frozen seafood company Iberconsa, European vacation rentals group Awaze, European private label sweet biscuits manufacturer Biscuit International, Italy-based global marine contractor De Wave Group and global wine distributor Fantini Group Vini.

The origin of the LRG investment traces back to Platinum’s creativity in the early days of the pandemic when M&A activity slowed.

Under the direction of Samson, the European deal team started looking at new sectors for potential M&A. Through that exercise, the team realized the potential of pursuing deals in the property services space, which led to the LRG acquisition.

“LRG is a strong platform with a healthy pipeline of add-on opportunities and is well positioned as a buyer of choice in its sector,” Platinum Equity Managing Director Fernando Goni said. “Platinum’s financial and transactional support can accelerate those efforts and help the company continue growing through branch acquisitions and larger, strategic M&A opportunities. We look forward to working with the management team to continue supporting the company’s long-term ambitions.”

Goni and Platinum Equity Vice President Filippo Rossi shared more details about LRG recently.

Q: Why was this a Platinum deal?

Goni:  One thing that really attracted us to this business is the property management side. The UK is a slightly different market environment than the U.S. in the sense that many rental flats and homes in the UK are individually owned. It’s the second home, and they’re rented out to create yearly annuity income. It’s an important investment for such owners, more than equities or bonds or any other forms of investments. In the U.S., you have larger corporations owning many homes and renting them out. In the UK, it’s mostly middle class.

Q: What is the immediate ops plan?

Rossi: There is an obvious opportunity there by keeping the M&A machine running. It can be running and acquiring small property agencies that manage up to 100 properties, and it can be also roll-up slightly larger companies that might manage 1,000, or 2,000 properties, but still trade at low multiples.

Q: Why the property management side?

Rossi: The key elements of this business that attracted us are the stability of this business model, the annuity-based income that they collect from the properties they manage, and the very diversified nature of the customer base. They also manage some ancillary services that are very attractive, such as related insurance products and other property management services.

Q: What are downside protections?

Goni: If you lose your No. 1 property owner, who might own around ten properties, you lose an immaterial amount of your profits, so you are protected on the customer side. The market environment in the UK is one where rents haven’t gone down for the last 30 years, except for a time during the global financial crisis. With the current macro environment continuing to fluctuate, you have a pretty good guard against inflation because rent has been growing more than inflation in the UK over the last 30 years. That increases the stability of this business model, creating a highly diversified, stable, annuity -like income.

Q: What are the opportunities?

Rossi: In the UK, this market is very fragmented with many small business owners that manage many properties. As those smaller business owners look for exits, LRG can be an attractive source of liquidity. LRG is one of the main players in a very disaggregated market. It is an extremely attractive opportunity to roll up smaller companies.

Q: It is only a UK story?

Goni: It’s difficult to go overseas, even to compare to Europe, because the markets are different. In addition, the regulations around managing property in terms of the gas, electricity, water etc. are different country by country.

Q: Any other aspect of the ops plan you can share?

Rossi: We have a level of experience with businesses that have also undergone a similar digital enhancement, but this business obviously will never go fully digital, because property management has an element of proximity, needing to be close to the tenants and the property owners to fix small issues like calling the plumber or making sure the electric system stays current with the latest regulations.