Breaking: Countrywide confirms merger talks this morning
Following reports on Sky over the weekend and confirmation this morning, industry experts wonder if it would make sense for the two companies to merge.
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.
Industry reaction
“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?”.
My Overview on the proposed merger plans
Countrywide’s failure to embrace the Proptech revolution has left it a financially wounded dinosaur, and any merger with LSL is really a hostile takeover, with LSL setting the terms.
Potentially massive redundancies – but CW is a bit of a Zombie company anyway, sleep walking into oblivion. All UK real estate is staff heavy, proptech can and is doing much of the ‘paper’ and heavy work it is the new model.
If you look at both LSL branches and CW branches, pick out the duplications, the expensive leases, the branches who never make profit, a slimmed down patch might be 450-branches, but you have the problem of the LSL franchises, are they in or out?
Advantage for LSL they have done a major pruning exercise, it has helped share price, and their c-suite is not such a stale pale brigade, but only marginally. It allows CW to fire the C-suite who have singly failed in their duty to perform.
Maybe the new ‘company’ will employ a 20% workforce who have proptech training and knowledge to drive efficiency and profit. Big advantage they could actually build a modern agency, one not built on legacy models, rather on the wants of consumers – look to Amazon & Netflix. But they need the correct advice.
Obviously, it may never happen.
Do we still need estate agents?
Yes, for now, the majority of 1.2M sales in the UK involved an agent, but the model is changing big agency needs to cater for Gen-Z and Millennial’s and their buying needs and patterns.
Will this business model stand the test of time?
No, Proptech gives the commercial edge to real estate business; late adopters will suffer the consequences.
Estate agency will be based on captured data and analytics which provide a clear narrative of what the customer likes and wants.
So, a personalised Proptech based service, with connection across digital platforms and smart phones, no need for hundreds of branches.
PropTech is many things including – Deep Learning, Artificial intelligence, Big Data, Intelligence Augmentation, The Internet of things, Machine Learning and Blockchain. The driver is to use data to streamline processes and deliver maximum revenues.
Will there be more industry consolidation?
Yes, already lowest amount of agents real terms since 1972, and I have many who ask me will technology, specifically AI replace them? I answer, Yes, look at the number of banks that have closed and the huge amounts of staff redundancies, it will not come overnight, but it is an inevitable consequence of progress.
In day-to-day terms – in the customer-led environment, making the customer journey, quicker, easier and more enjoyable is also a party trick of AI. And the advance in software systems for realtors all over the world gives more time for the sales force to be empathetic and human, closing more business.’
Just as FinTech exploded onto the scene in the past 15-years, where massive amounts of money were invested into Financial technology, PropTech is now starting to have the same levels of investment, in both the UK and the rest of the world.
The big problem is that many UK estate agents see Proptech or the sub-division of PropTech that applies to them as Sci-fi. Agents like Countrywide’s C-suite are very conservative, and slow moving to make changes to their businesses, they fear change.
They feel bamboozled by the terminology and the complexities of PropTech, with many agents say it all sounds a bit costly, and it is not too certain which bit of PropTech works and produces a profit.
Since 1985, the number of agents has grown by 500% and the amount of housing stock by only 78%, the digital transformation of real estate will change the second figure, less agents but with a much higher tech reach, giving the end customer greater satisfaction.
Andrew Stanton, Proptech Real Estate Analyst Influencer Journalist & PR Consultant