Northstar's Singapore buyout starts a new ERA

House prices have become a political hot potato as the city-state's middle classes find it struggle to compete in a market that is becoming increasingly expensive relative to average wages. The government has intervened eight times since September 2009 in an attempt to rein in valuations. 

It is not a good time to be selling or buying a property agency business, but this didn't stop Northstar Group acquiring the ERA Real Estate franchise in Singapore from Hersing Corporation through a management buyout. The Singapore-based GP, which primarily focuses on Indonesia, reportedly paid more than S$100 million ($78.8 million) for the asset, although less than the S$150 million Hersing was seeking. Approximately one third of the transaction was funded through debt.

Part of ERA's appeal was its ability to withstand property market fluctuations. "ERA has 5,100 agents but only 100 employees so there's a low fixed cost base," a source familiar with the transaction told AVCJ. "You would think that, with the property market under pressure, the business would become unprofitable. But actually, it just becomes less profitable."

The company is also well positioned to benefit from a market recovery. ERA is the dominant player in public housing (HDB) sales - and 80% of Singaporeans live in HDB properties - brokering 44,000 transactions with a total value of S$22.3 billion in 2012. Every agent that closed a deal handed a percentage of the fee to ERA.

Northstar is also in the process of purchasing the Asia Pacific master franchise for ERA covering 18 countries in the region, subject to approval from its ultimate owner, US-based Realogy. However, Singapore is by some distance the most profitable part of the business and several of the senior executives who helped build it are participating in the investment.

It is Northstar's fourth deal outside of Indonesia and its second in Singapore, following the acquisition of a majority stake in Nera Telecommunications last year. At least four PE players expressed an interest in ERA and Northstar overcame the challenge of a global fund in the final round of bidding.

The origins of the deal lie in the privatization of Hersing - which owned various assets in addition to ERA - last year by founder Harry Chua. His initial plan was to exit the group as a whole, prompting some initial interest from PE, but instead it has been sold in pieces.

ERA is unlikely to be away from the public markets for long. According to Ashish Shastry, managing partner at Northstar, the intent is to re-list the company in Singapore "as a ‘pure-play' real estate brokerage" within 2-3 years.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Southeast Asia
• Real estate
• Real estate
• Northstar Group
• Singapore
• Real estate