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Manhattan rents soar for third straight month—hitting $5,113 on average
RJ Express: Bloomberg Reporting Newmark Rebuffs Cushman Bid
OCTOBER 6, 2020 | 2:35 PM EDT
EXPRESS
This afternoon Bloomberg is reporting that Outperform-rated Cushman and Wakefield recently approached Outperform-rated Newmark Group
about a potential acquisition but was rebuffed. Neither firm has publicly commented on the report. A few quick thoughts:
● We recently published a research note detailing Newmark's very attractive valuation. We don't think this valuation is lost on Cushman and
other competitors.
● Cushman has grown substantially via acquisitions in recent years such that it is the highest levered CRE service provider in our coverage with a
debt/TTM EBITDA of 3.7x as of 2Q20, with that leverage likely heading higher as strong results in 2H19 are lapped. As such, Cushman's capacity
to use debt to finance an acquisition is likely somewhat limited, meaning any deal might contain a significant equity component.
● Chairman Howard Lutnick, via former parent entity Cantor Fitzgerald's Class B shares as well as directly-owned Class A shares, controls ~60%
of Newmark's voting rights. We strongly suspect his view is that Newmark is currently substantially undervalued and, as such, there could be
a very wide bid-ask spread between what Cushman might be willing to pay and what Newmark might be willing to accept.
● Strategically, an acquisition of Newmark would make sense. It would push Cushman up the U.S. capital markets league table to fight for the
#1 spot with CBRE Group, including substantially bulking up its multi-family brokerage business while adding multi-family origination and
servicing capabilities. While 1+1 doesn't always equal 2 on the revenue side in CRE brokerage consolidation as some brokers get crowded out
and depart, at Newmark's valuation Cushman would likely deem this risk to be acceptable.
"NMRK reported quarterly earnings of $0.30 per share which beat the analyst consensus estimate of $0.28 by 7.14 percent. This is a 20 percent increase over earnings of $0.25 per share from the same period last year. The company reported quarterly sales of $551.478 million which beat the analyst consensus estimate of $513.62 million by 7.37 percent. This is a 18.19 percent increase over sales of $466.619 million the same period last year."