In a significant development in the UK housing sector, Legal & General has agreed to sell its housebuilding subsidiary, Cala Group, to funds managed by US private equity firms Sixth Street Partners and Patron Capital for £1.35 billion. This transaction occurs as the industry prepares for potential changes in housing policy, particularly regarding green belt development.
The sale aligns with Legal & General's new strategic direction under CEO António Simões, who announced plans to divest the housebuilding business in June 2024. Simões stated, "As much as it's a great business, we're not the natural owners for it." However, he emphasized that Legal & General will maintain a significant presence in the housing market through its affordable housing operations.
This move comes as Angela Rayner, a prominent figure in the Labour Party, advances plans to construct thousands of homes on green belt land. The initiative aims to meet Labour's ambitious target of building 1.5 million homes within five years. Rayner is working to modify planning laws, making it easier for local councils to develop on lower-quality green belt areas.
Cala Group, founded in 1865, specializes in high-end properties in southern England, the Cotswolds, and Scotland. The Edinburgh-based company, employing 1,300 people across ten offices, reported £42 million in operating profits during the first half of 2024. Under Legal & General's ownership, Cala tripled its annual home construction, selling nearly 3,000 units in 2023.
The £1.35 billion deal marks Cala's return to Patron Capital, which had previously sold its majority stake to Legal & General six years ago. For Sixth Street Partners, this acquisition expands its real estate portfolio, complementing investments in companies like Airbnb, Spotify, and football clubs Real Madrid and Barcelona.
Keith Breslauer, managing director and founder of Patron Capital, expressed the buyers' intention to further develop Cala and address the UK's housing undersupply. The private equity firms outbid other potential buyers, including FTSE 100 housebuilder Persimmon.
Simões highlighted that the chosen buyers presented an attractive valuation and provided certainty about the sale's completion, allowing Legal & General to focus on growing its other business segments.
"There's a huge need for affordable housing and we're not building enough homes in the UK. But the plans to do it, we want to be part of that solution. Therefore we see a big opportunity that's both good for society obviously because lots of people are waiting for affordable homes, but also very good for our shareholders."
This transaction, expected to conclude by the end of 2024, will generate £1.16 billion in cash proceeds for Legal & General. As the UK grapples with its ongoing housing shortage, this deal represents a significant shift in the landscape of property development and investment.