Brookfield Asset Management (NYSE: BAM) has an exceptional investing track record. Because of that, when it makes a large investment in a new sector, investors should take notice.
It recently did that by making a bold bet on modular homes and workspaces through a $5 billion acquisition of Modulaire Group. Here's a closer look at that business and why Brookfield is pouring billions into the modular services space.
Modulaire Group 101
Brookfield's business services and industrial affiliate, Brookfield Business Partners (NYSE: BBU), has agreed to purchase Modulaire Group along with some institutional partners. Modulaire is a leading provider of modular leasing services in Europe and Asia-Pacific. The company has a global fleet of about 250,000 modular space and portable storage units and 3,400 remote accommodations rooms. It leases these modular units to 48,000 customers in the industrial, infrastructure, and public sectors across 25 countries. Its modular units provide customers with a cost-effective and environmentally friendly solution for their temporary space requirements.
Modulaire fits well within Brookfield Business Partners' focus on providing business services. It's a market leader in Europe's largest economies. In addition, it generates steady and diversified cash flows as it leases modular units to the stable infrastructure, public sector, and industrial end markets.
Why is Brookfield pouring billions into modular spaces?
Modulaire sees a bright future for modular spaces. Several catalysts are driving accelerating demand, including:
- Post-COVID-19 government stimulus programs.
- An aging building stock across Europe.
- A structural shift toward modular space.
- ESG is also acting as a tailwind, leading customers to seek buildings with smaller carbon footprints.
These catalysts should enable Modulaire to continue growing rapidly in the coming years as it provides more of its flexible, environmentally friendly modular space solutions to customers. For example, according to an estimate by Fortune Business Insights, the global modular construction market will grow to more than $106.2 billion by 2027, or a 5.9% compound annual growth rate. Modulaire is in an excellent position to capture this growth and demand from other markets thanks to its strong presence across Europe and Asia-Pacific.
Brookfield aims to support Modulaire's growth. Modulaire had considered other strategic and financing options to support its continued expansion, including an initial public offering. However, as part of Brookfield Business Partners, it will have greater access to funding to support its growth, including continued acquisitions of other modular space providers and new market entry opportunities.
Before Brookfield's acquisition, Modulaire had undertaken a targeted acquisition strategy. It completed two deals in 2021 and nine over the last 18 months. Its most recent purchases were Tecnifor, Locabox, and FAE in Italy. Tecnifor and Locabox are together one of that country's leading modular building leasing solutions providers, operating a fleet of more than 12,000 modular units for clients in construction and public administration. Meanwhile, FAE operates a facility that manufactures modular units.
In addition to acquiring companies focused on flexible workspaces, Modulaire has also expanded into the temporary accommodation segment. Its first deal of 2021 was Carter Accommodation Group, a leading player in the temporary accommodation business in the U.K. The company had also recently acquired Advante, a top player in selling and leasing eco-friendly instant-start welfare accommodation units.
Modulaire noted in its first-quarter earnings release that it had a strong pipeline of highly accretive, actionable bolt-on M&A opportunities. When combined with the long-term macroeconomic and consumer trends toward modular construction, Modulaire should be able to continue growing at a strong rate.
A big bet on the future of modular
Brookfield sees a compelling opportunity in the modular space sector. That led it to join institutional partners in investing $5 billion to acquire Modularie, giving it control over a market leader in Europe and Asia-Pacific. It can assist Modulaire in making additional acquisitions and expanding into new markets. That should enable Modulair to continue growing briskly in the coming years, positioning Brookfield to potentially earn an attractive return on its investment.