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Why CBRE Stock Triumphed on Tuesday
Key Points
The real estate specialist has struck a deal to acquire data center infrastructure company Onnec Group.
This is an all-cash transaction worth around $613 million.
CBRE Group (NYSE:CBRE) is bulking up through an acquisition, and investors were there for it on Tuesday. They signaled approval by snapping up shares of the real estate company's equity, and CBRE's stock closed that day's trading session nearly 3% higher.
An across-the-Pond acquisition
Before market open, CBRE announced it had signed a definitive agreement to purchase Onnec Group. This is a London-based company that provides data center infrastructure services to major tech companies in its native Europe and the Asia-Pacific region. The initial price is 460 million British pounds ($613 million), which is to be paid entirely in cash.
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CBRE will be on the hook for a multi-year earnout of as much as 300 million pounds ($400 million) if Onnec meets certain growth milestones, which were not specified.
The buyer said that its asset-to-be will be immediately accretive to its earnings per share not under generally accepted accounting principles (non-GAAP or "core," in the company's vernacular). Next year, Onnec is anticipated to produce 370 million pounds ($493 million) in revenue. It should also post core earnings before interest, taxes, depreciation, and amortization (EBITDA) of over 50 million pounds ($67 million).
CBRE quoted its COO Vikram Kohli as saying that the company "is pursuing an explicit strategy to build a global infrastructure services business to complement our real estate services business."
"We've long believed Onnec is an excellent fit in this strategy," Kohli added.
A play on a scorching hot market
I think investors were most excited about CBRE's push into the white-hot data center market. Big tech companies continue to feverishly build out infrastructure for artificial intelligence (AI) compute, a trend that appears likely to snowball for years. I don't blame them at all for being enthusiastic about what Onnec can add to CBRE's business.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.