Countrywide and LSL have now both confirmed that they are in talks to complete a £500 million merger of the two PLCs in a reported all-share deal.
“The Board of Countrywide plc notes the recent press speculation regarding Countrywide plc. As required under the Code, Countrywide confirms that it is in discussions with LSL Property Services plc regarding a possible all-share combination,” the statement says.
“Discussions between Countrywide and LSL are ongoing. At this stage, there can be no certainty that any offer will ultimately be made for Countrywide.”
But any merger would face several obstacles including the need secure a green light from the Competition and Markets Authority (CMA); the companies’ brands are competitors in hundreds of local property markets. The two must also put together a deal by 23rd March to conform to City mergers and acquisitions rules for PLCs.
Such a merger would not be good for employment levels within the two behemoths, which employ some 14,000 people between them as many regional and head office functions would be duplicated.
Both companies have been busy recently. LSL last week revealed that it had completed its branch reduction programme at Your Move and Reeds Rains, while Countrywide has been battling to sell-off its commercial arm to a Monaco investor, so far unsuccessfully.
The Negotiator has been told by reliable sources that rumours of ‘something big’ were gathering pace last week, which explains recent hikes in its share price, which has risen from £3.10 to £3.40p over the last 10 days.
“Scale is a key factor in estate agency – volumes drive results – and for example this is why, at the moment, only Purplebricks has a chance in the online space as the others do not have enough boots on the ground,” says Mike Day of Integra Property Services (left).
“Given that LSL have recently been putting out statements about how their restructure and rationalisation has been a success – taking on a large branch network under multiple brands seems at odds although.
“When Connells took over Sequence in 2003, the underlying business was fairly strong in volume terms – sales per branch were very similar in Sequence and Connells – but the penetration of other services such as conveyancing and mortgages was much weaker in Sequence as were fee levels and they had excessive costs.
“By getting Sequence to operate to similar KPIs to Connells, the bottom-line performance has been transformed. I’m not convinced – albeit without the detailed info – that underlying performance is however there with this potential merger.”
Proptech consultant Andrew Stanton warns that a combined Countrywide and LSL would be exposed.
“The vulnerability to big scale agency is the referral fees ban [which would] kill them, as often they make their profits from the fees earned from conveyancing, surveys and mortgages.
“Also, LSL is made up of franchises while countrywide are owned branches, so how would that work?”.