Legal & General sells housebuilder Cala for £1.6bn

The new boss of Legal & General, the FTSE 100-listed financial services group, has made his first big strategic move by striking a deal to offload its housebuilding business for £1.16 billion in cash.
L&G has agreed to sell Cala Homes to the American private equity firm Sixth Street Partners and Patron Capital, a London-based buyout house that specialises in property and had previously co-owned the housebuilder. The pair are understood to have seen off Persimmon, the London-listed builder, which had also tabled a bid.
The deal comes after António Simões, who took charge of L&G at the start of the year, revealed in June that he would try to sell Cala as part of a broader strategy to simplify the group and boost its stock market value.
Simões, 49, succeeded Sir Nigel Wilson, who had led the company for almost 12 years and oversaw an expansion of the financial services business. Its sprawling operations include life assurance, pensions, asset management and infrastructure investments. L&G’s share price has languished since the Covid crisis, putting pressure on Simões, a Portuguese-born former banker, to boost the stock’s performance.
L&G said on Wednesday that it would consider using some of the proceeds from the Cala sale to bolster its share buybacks, which are a way of returning capital to stock market investors. Simões said the deal was a “proof point of the momentum” of his strategy.
L&G will receive about £500 million upfront when the disposal is finalised, with the rest of the cash paid over the following five years on a deferred, non-contingent basis. The deal gives Cala an enterprise value, which includes debt, of £1.35 billion.
Simões said he was “very pleased” with the price it had fetched, which compares with the £605 million valuation put on Cala’s equity in 2018, when L&G took full control of the business.
Even so, shares in L&G slid by 6½p, or 2.8 per cent, to 221¾p amid disappointment among some investors that only a portion of the cash is being paid immediately on completion of the sale.
“Very few people can write you a cheque over £1 billion on day one and that’s why it’s deferred,” Simões said.
Cala, which is based in Edinburgh, employs more than 1,300 people and focuses on building upmarket properties in Scotland, the Cotswolds and the south of England. It sold 2,917 homes last year and generated adjusted pre-tax profits of £112 million on revenues of £1.3 billion.
It is one of Britain’s oldest housebuilders, having been founded in 1875 as the City of Aberdeen Land Association, and was the first Scottish company to list on the London stock market.
The business was taken private by its management team in 1999 but ran into trouble a decade later when the housing market crashed, with the turmoil resulting in Lloyds Banking Group, its lender, taking control of the builder through a debt-for-equity swap.
Patron and L&G then acquired Cala from Lloyds in a 2013 deal that valued it at £210 million. L&G bought out Patron five years later.
The deal comes as corporate Britain waits for the new Labour government to deliver its first budget. Tax rises are widely expected to fill what Rachel Reeves, the chancellor, claims is a £22 billion hole that has been left in the public finances by the previous Conservative administration.
Simões, who has been meeting investors in the US and Asia recently, said he was not seeing evidence that this was deterring investment in the UK.
“Obviously the budget is an important milestone, but I don’t think people are waiting, I see real capital being invested in the economy.”