Two sides of the deal - Taylor Wimpey did well when it sold its US arm but the buyers did better
Two years back, as we touched on in Stop me if you’ve heard this before, Taylor Wimpey sold off its US housing business to two US private equity firms for what shareholders, including the value perspective, felt to be a fair price given the circumstances of $955m (£620m). It was a significant deal for the house builder as the proceeds allowed it to pay down a large chunk of its outstanding debt and thereby reduce considerably the risks surrounding its balance sheet.
As we’ve written about in the past, for patient equity investors who had spotted some potential for that to happen, this was a good outcome and Taylor Wimpey’s shares have done very well since. But of course there are two sides to every deal so how have the two buyers, TPG Capital and Oaktree Capital Management, come out of it?
The price they paid, as we said, was not a bad one but neither – purely because of the time the deal was made, when the US housing market was still highly uncertain – was it as good as it might have been. Add in the fact TPG and Oaktree are very smart investors indeed and we should probably not be surprised that they are now proposing to float 20% of their purchase on the US stock market for a valuation that implies the entire business is worth $2.6bn.
There are two points to note here – the first simply being how quickly things can change. In the space of just two years, a business investors had genuine concerns might never be sold for even a half-reasonable price is now valued at comfortably more than double – and almost treble – what it went for. What is more, it is fair to suppose the reason the two companies are floating only 20% of the business now is they believe there is a good chance they can sell the rest of it for even more in the future.
The second point is Taylor Wimpey’s investors cannot feel too aggrieved to be missing out on such potential. In effect, the state of its finances meant the company had little choice but to make a sale in order to bring in more cash. But, as it was a forced seller, it allowed some very clever value investors to take the business off them, bide their time without obviously really doing very much at all and then sell up for three times the price a few years later.
Given what has happened to the trajectory of the us housing market since, it has all worked out incredibly well for TPG and Oaktree – possibly better than they ever expected – and is a great example of how, if you are willing to put your capital to work when the economy or other people are in distress, you can make some very attractive investment returns.
Fund Manager, Equity Value
I joined Schroders as a graduate in 2005 and have spent most of my time in the business as part of the UK equities team. Between 2006 and 2010 I was a research analyst responsible for producing investment research on companies in the UK construction, business services and telecoms sectors. In mid 2010 I joined Kevin Murphy and Nick Kirrage on the UK value team.
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