STRATEGY
acquisitions made last year had been in the group for the full year, revenues would have been nearly 12 per cent higher and profit 20 per cent greater. He’s impressed by the acquisition of Marsh & Parsons, too, not only will it provide a platform for a “London ‘buy and build’ strategy”, he expects it to earn more than its finance cost this financial year, increasing LSL’s profits. Although LSL’s debt rose from £4.9m to £38.4m last year, Leboff regards the firm as “highly cash generative”, and says current debt levels are “very comfortable”. He points to the fact that LSL has £75 million of agreed long term finance in place, so it could afford another Marsh & Parsons and not strain its balance sheet. But Leboff also points to the fact that
capital constraints can make life very difficult for agents. He believes Marsh & Parsons was handicapped by not having enough capital; “its former owners’ cash flow priorities prevented it from taking advantage of some opportunities to open new branches,” he says. Its new ownership could help it grow much faster. Countrywide spent £24 million last year
on acquisitions, refurbishments, and new offices, particularly in the lettings sector. John Hards, MD, Countrywide Residential Lettings Division, says organic growth has been strong. “In just under two years, Countrywide has opened an additional 138 letting branches within its existing Estate Agency footprint, under the ‘New Start Programme’. We have plans to add a further 70 branches this year.”
We acquire lettings books to bulk up existing branches.”
JOHN HARDS COUNTRYWIDE RESIDENTIAL
To this, Countrywide has added strategic
acquisitions. For instance in Yorkshire, Countrywide bought
Letmove.com in Wakefield, Blundells and Spencers in Sheffield, and Mike Jolly Estates in South Yorkshire. John Hards says, “We acquire lettings books to bulk up existing branches and increase their scale, as well as acquiring branch networks in locations where our coverage and market share are lower.” Countrywide made 12 lettings acquisitions
We get royalties and the agents get a broader base. It’s a meeting of
ambitions.” DOMINIC AGACE WINKWORTH
last year, and Hards says the company plans to expand further in 2012, both organically and through acquisition. Another agency that is determined to
develop while others droop is Winkworth. Since listing on the AIM in 2009 Winkworth have expanded what was a tight family ship into a serious player, with over 90 offices in the UK, France and Portugal. Dominic Agace, CEO, says that the fact that transactions are now just 50 per cent of those at the market’s peak, they will continue to grow. How? Through bringing existing estate agencies into the Winkworth brand under franchise arrangements. “We don’t buy the business, they remain independent, just operating as one of our franchisees. We receive franchise royalties in return for giving the agencies, some of whom will have been competing in very tough local markets, a broader base. It’s a meeting of ambitions.”
WHERE’S THE POT OF GOLD? While debt finance remains important, most growing firms are backed by the stock market or by private finance houses. Belvoir’s float raised £6.3 million of fresh capital; while some went to buy out one of the founders, the rest will be applied to expansion of the franchise network and the creation of wholly owned offices. Belvoir was oversubscribed by 20 per
cent, and floated at 75p, and the share price has risen to nearly 80p, a successful result for investors. The price the company has to pay for its success, though, is a 7.5 per cent dividend yield – making it attractive to income investors and something of a rarity on AIM (less than a quarter of AIM companies pay a dividend). Dorian Gonsalves says that moving to AIM made various demands. For instance, Belvoir needed to bring in a finance director, Carl Chadwick, who joined in August 2011, and other changes had to be made, but they were “part and parcel of gearing up to have a bigger future.” He believes equity is the best way for
lettings agents to fund expansion. “Companies like us don’t have a huge amount of assets,” he explains. “The assets in your business are goodwill, brand and people. We could have borrowed, but that would have needed the owners of the company to provide security.” Equity investors, unlike banks, are focused on the opportunity for growth rather than simply on the repayment of their capital, so backing a firm like Belvoir is attractive. Dominic Agace says that AIM has been
very successful for them over the last two years, “It has been fantastic for our profile, AIM requires total transparency so our franchisees can be confident that they know what they are buying into”. And a positive set of results for 2011 should bring further confidence with sales, profits and dividends all up on 2010.
THE RIGHT RELATIONSHIPS
Other firms prefer to stay away from the stock market, but bring in private equity. Fine & Country is now looking to broaden its base by bringing in new equity partners.
We don’t have huge assets, our assets are our goodwill, our brand and our
people.” DORIAN GONSALVES BELVOIR
Matthew Pryke, managing director, explains that Fine & Country isn’t tempted by the stock market. “We are self-financing, we’re a private company, that’s always been the way it’s worked within the business.” But in order to secure the right businesses in growth economies where it’s not well represented, such as China, Singapore, and India, it needs to consider equity partnerships rather than its traditional licence arrangements. “We are looking for talent,” he clarifies,
“We are not looking for cash.” The constraint on Fine & Country is not finance, but the ability to find the right people and businesses. And he says that while the stock market
has its benefits – “it’s very appealing if you’re looking to get credibility or cash to fund an expansion drive” – it could also dilute Fine & Country’s entrepreneurial culture. “There’s a push and pull between
PROPERTYdrum JUNE 2012 47
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