CBRE Group Inc.

We believe CBRE has been growing prudently, partially from acquisitions. However, any large acquisitions would expose the company to higher leverage and integration risk. We view positively CBRE's recent acquisition of J&J Worldwide Services (J&J) in February 2024 because it will increase CBRE's size and scale in facilities management. CBRE acquired J&J--a provider of engineering services, base support operations, and facilities maintenance for the U.S. federal government--for $800 million in cash and a potential earn-out of up to $250 million. The acquisition of J&J represents a continued expansion of CBRE's Global Workplace Solutions segment, which includes facilities and project management. While the facilities management business generates lower margins than CBRE's other transaction-based businesses, it provides a stable source of recurring

...We expect CBRE Group Inc. to maintain its No. 1 global market position in commercial real estate (CRE) services. Benefiting from its leading market position in CRE services and its growing project, property, and facilities management revenue stream, we expect CBRE to continue to generate steady cash flow, despite the slowdown in the company's high-margin capital markets and leasing businesses. While CBRE's capital markets and leasing was pressured in 2023, leading to lower margins, we think those business lines could rebound in 2024 if interest rates and inflation stabilize. We believe management is committed to maintaining a relatively conservative balance sheet, despite share buybacks and mergers and acquisitions (M&A). CBRE has demonstrated good operating performance and strong cash flow generation over the past few years. While CBRE invests significant cash flow into share buybacks (total of $2.5 billion in 2022 and 2023), we think the company will scale back its capital deployment...

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