Cala set for new lease of life after takeover deal

Speaking to The Scotsman after the deal with insurer Legal & General (L&G) and private equity firm Patron was unveiled, Brown said he and his fellow managers were rolling £10m into the firm, “which underpins the confidence we have in Cala”.

He added: “The housing market has been very stable for the past 18 months and we’ve seen a significant increase in trading since the turn of the year.

“We think there’s an underlying improvement in the market, but we have to accept the economic climate is still quite difficult.”

Cala had been majority-owned by Bank of Scotland – now part of Lloyds Banking Group – since 1999, but control will now pass to L&G and Patron, each of which will own 46.5 per cent of the business. The remaining 7 per cent will be held by management.

The deal values Cala at £210m, including debt. L&G is paying £65m for its stake, which marks the first direct investment by the insurance group since it outlined a new growth strategy alongside its annual results this month.

L&G strategy director Wadham Downing said the group has a further £36.5 billion ready to invest and it is looking for other “socially useful” deals in areas such as education, transport and energy.

Patron, which led the deal, owns Paisley-based five-a-side football pitch operator Powerleague and last year backed oil tycoon Alasdair Locke in the £40m acquisition of petrol forecourt business Motor Fuel group.

Managing director Keith Breslauer said: “This significant transaction for Patron highlights our confidence in Cala, its growth potential and the group’s competitive position in the UK housebuilding sector, which is one of the key areas of focus for the economy due to its ability to create jobs and fuel economic growth.”

Cala is focused on more affluent areas of the UK where house prices are relatively stable. This includes areas such as Aberdeen, the Cotswolds and the Home Counties. The firm, which began life in 1875 as the City of Aberdeen Land Association, was the first Scottish company to list on the London Stock Exchange. It generated a pre-tax profit of £11.4m for the year to June 2012 – its strongest result since it was taken private in 1999.

Sales during the first eight weeks of 2013 are up a third compared with last year, with 154 homes sold at an average price of about £330,000.

Lloyds will no longer have an equity stake in the firm, but it will continue to support the business with a £100m five-year banking facility.

Brown said: “We’ve had a great relationship with Bank of Scotland and then Lloyds since 1999.

“When we approached them to talk about having Patron and L&G as new investors, they were very keen to continue to support the business with debt, mainly because they recognised the strength of our management team and that of the housing market.”

Brown will remain with the business, as will finance director Graham Reid and chairman Anthony Fry, but non-executive directors Mike Freshney and Mike Pacitti will step down once the deal is completed.

Freshney is retiring after almost 11 years on the board, while Pacitti was brought in 15 months ago to help with the sale process.

Given that Cala operates at the higher end of the market, Brown said government initiatives such as New Buy – which aims to help people without a large deposit get on the housing ladder – have had limited direct impact on its trading, “but the first-time buyer market is being stimulated, and that’s starting to have a knock-on effect further up the chain.”

He also said the Bank of England’s Funding for Lending scheme was helping to reduce mortgages rates and make home loans more affordable.