PE firm Lone Star to buy McCarthy & Stone for £630m

(Sharecast News) - McCarthy & Stone has agreed to be bought by US private equity group Lone Star in a deal that values the retirement housebuilder at £630m.
Lone Star will pay 115p a share in cash, which is a premium of around 38.6% to McCarthy's closing share price on Thursday. In February, before the pandemic hit, McCarthy shares were trading at around 158p.

The company's chairman, Paul Lester, said: "The McCarthy & Stone directors believe that the offer from Lone Star represents fair value for shareholders and unanimously intends to recommend the offer.

"The all-cash offer represents a compelling and attractive opportunity for shareholders to realise and crystallise their investment in McCarthy & Stone in the near term and also provides a meaningful premium to the prevailing share price notwithstanding the backdrop of the wider risks posed by the political and macro-economic environment."

Donald Quintin, president of Lone Star Europe, said McCarthy represents "an attractive opportunity in a market underpinned by clear fundamentals: a rapidly ageing population and a structural undersupply of suitable housing options for older people".

"With our proven experience in developing property-related businesses, we believe our partnership will enable McCarthy & Stone to accelerate its transformation, which aligns with the Government's goal of increasing the supply of attractive housing options in the UK," he added.

At 1115 BST, McCarthy shares were up 40% at 116.48p.

Canaccord Genuity said that while the offer from Lone Star comes as a surprise, it is not surprising that it is being recommended.

"MCS has seen profits, returns and its share price fall severely over recent years as it faced a challenging secondary housing market and more recently the impact of Covid-19. With the onset of a second wave of the virus, it is only reasonable to expect trading conditions and the implementation of elements of its strategy will become more difficult, particularly given the average age of its customer.

"This would likely put more pressure on profits and the balance sheet, with the timing of returning to pre-Covid profits and returns likely pushed out beyond the FY2022 time horizon expected. While there is arguably more attractive long-term value potential, we believe the timing of achieving this and shorter term risks have increased. Clearly, Lone Star is able to take a longer-term view and has strong positions and expertise in real estate.

"The implied valuation is essentially one times book which looks attractive to us given the trading outlook and macro risks with a decent return on those assets unlikely to be delivered in the foreseeable future. We would expect the offer to be successful with the transaction expected to be completed late this year or early 2021."