STRATEGY
the business wanting freedom to move quickly and take advantage of opportunities, and the stock market which wants transparency and oversight.” Private equity funds provide another
avenue of funding. Leaders, for instance, has had three successive private equity investors, first of all 3i, brought on board 15 months after the original management buyout “to fund a slightly faster acquisition programme.” By 2005 3i had changed its business plan to focus on larger companies, so a second buy-out brought in RO Group; and in 2010, RO Group exited with a profit, and Bowmark became Leaders’ third partner. (The Daily Telegraph reported this as a £48 million deal.) Paul Weller says that while private equity
firms aren’t particularly impressed by pure estate agents, they understand the attraction of the lettings business with its strong cash generation and recurring income streams. “We had interest from both trade buyers and private equity. It was actually private equity that set the higher value on the business,” he says. And though Leaders has been through three private equity owners, he still believes it’s better to stick with private equity rather than head for the stock exchange. “We have investors who understand and support our business strategy,” he says, “and we’re not subject to the whims and fickleness of the stock market. But you have to go in with your eyes open. At some stage they will want to take their money out.” Leaders is particularly happy with
Bowmark, a specialist firm which invests in the property business and understands it well. Since Bowmark came on the scene, Paul Weller says, Leaders has made 21 acquisitions in two years, roughly doubling the firm’s profits, “Number twenty-one is happening today!” he said happily when I spoke to him. More finance will let Leaders grow faster.
“We’ve turned the volume knob up a notch,” he says, “now we’ve got the capacity to do bigger acquisitions.” The acquisition
We are self- financing, we are looking for talent. We are not looking
for cash.” MATTHEW PRYKE FINE & COUNTRY
48 JUNE 2012 PROPERTYdrum
Agents don’t have to grow,
but many feel that stability is not a real option.’
of JSM, a 6 branch firm in East Anglia, is their largest to date, and sends the message that Leaders is moving outside its traditional areas. Countrywide, which was listed on the
stock market for a while, is now also in the hands of private equity investors, and John Hards says there are big advantages. “As a private company, we continue to take a long term view and invest in areas that make strategic sense,” he says. That might not be possible if the stock market wanted to see faster growth in profits at the expense of long term market share. Growing by acquisition does make demands on the company, though. Paul Weller has an accountancy background and he points out that’s a big advantage if you’re buying businesses, but he also has the support of a good acquisitions team. He has ten people working purely on assessing and integrating acquisitions, and estimates it costs the firm around half a million a year. “You need that level of resource and skill to absorb acquisitions at the rate we do,” he says, “without getting indigestion. We turn down a lot of acquisitions; we have to be selective.” Belvoir, too, uses its audit team
extensively to analyse and assess acquisitions, and one member of the support team specialises in acquisition work. Dorian Gonsalves agrees that selectivity is important; he says, “So far this year my hit rate looks pretty good, but at least half of the opportunities we look at fall by the wayside” for one reason or another.
MARKET LIMITS
With the exception of Marsh & Parsons, most of the corporate deals of the last
couple of years have been fairly small; mega-mergers seem to be off the agenda. That’s partly because estate and lettings agency remains a fragmented industry with relatively few sizeable targets. The fact that most agencies remain privately owned also makes larger takeovers more difficult to stage, compared, say, to the pubs sector, where many of the largest groups are stock exchange listed. Larger mergers might happen if some of the larger players become financially stressed over the next couple of years, though, or, possibly, if owners feel they can’t develop the business further with the resources they have. Agents don’t have to grow, they could
simply carry on trading the way they are. But many companies feel stability is not a real option. For instance Ian Wilson of Martin & Co believes the company needs to add sales to its rental portfolio, or it will lose out. He says he lost a third of his rental portfolio in 12 months back in 1996-7, when prices increased and landlords took profits on their portfolios, and the same could happen again. So Martin & Co needs to spend £1,500 a branch on developing estate agency, a total bill of over a quarter of a million pounds, and that’s before expanding the branch network. Dorian Gonsalves says the lettings
market is getting more competitive as more and more estate agents have entered the business, so Belvoir can’t afford to rest on its laurels. “If we didn’t have the funding,” he says, “we could easily have got behind the curve in terms of acquisition growth.”
We need to add sales to our rental portfolio or we will lose out, as we did in 1996-7.”
IAN WILSON MARTIN & CO
While currently, Belvoir is making fairly small acquisitions, an AIM quote enables the company to go back to the market for further funds if a larger target becomes available. “One of our ambitions is to acquire a larger chain,” he says, “and we can move more quickly to raise money from shareholders than we could from a bank.”
Do you have any views to share?
www.propertydrum.com/articles/corpstrategy
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