The Negotiator The essential site for residential agents
The OnTheMarket/CoStar issue is reaching a crescendo and we will all see if the disparate group of shareholders will be able to resist jam today for a possible jamboree tomorrow.
There is no question that OnTheMarket doing a deal with CoStar it will equip it with nuclear firepower. And guess which portal will then be in their crosshairs? You’re absolutely correct. Rightmove.
GLUTTONOUS
Despite its unassailable position – with its gluttonous 74% profit margin – since the CoStar deal has been announced its rock-solid share price has been slashed by circa 30% which has shaved off more than £1 billion from its bloated market cap.
And I would suggest that’s no trifling matter. Even the hardy perennial investment analysts have done a volte-face and changed their recommendation from a ‘buy’ signal to a ‘sell’.
The Bismarck: Sunk by the Royal Navy.
So could Rightmove shareholders suffer the same fate of the impenetrable battleship Bismarck? In its day, The Bismarck was Hitler’s mightiest maritime colossus but it was eventually sunk by the Royal Navy.
CoStar is offering 110p per share, which is equivalent to £100million, and this represents a very modest 2.5 times multiple on OnTheMarket’s turnover.
I’m not resistant to a deal with CoStar, or others for that matter.”
Although I am the founder of OnTheMarket, I’m not resistant to a deal with CoStar, or others for that matter.
I just think that the terms of this deal are not properly developed and are far too tame.
By an outright sale, not only will the agents be denied any upside but also with total control, CoStar could then punish agents as Rightmove has done so gratuitously to date.
FEUDAL AND SADOMASOCHISTIC
Rightmove and Zoopla are worth over £5.5 billion between them but all of their data and revenue streams are derived from agents’ brethren.
This feudal and sadomasochistic relationship was exactly the reason why I founded OnTheMarket in the first place.
When I was a board member of PrimeLocation we sold to the Daily Mail in 2006 for £50 million. But by doing so, we all lost out many millions on the subsequent journey. However, at least the shareholders gained 300% on their shares which is in sharp contrast to the present deal with CoStar, where the agents are losing 33% of their issue price when the company was floated a number of years ago.
SOLD A PUP
If the deal goes through there will be lots of celebrations in the Goldman Sachs camp but few amongst the agents, who in my opinion are being sold a pup.
I just hope that they don’t sleepwalk into this bad deal by default.
I say to the shareholders, stand up and be counted.
You have one shot at this – make it a good one!
Trevor Abrahmsohn (main picture) is founder of OnTheMarket.com and chief executive of Glentree International
Whilst I hold Trevor in very high regard, increasingly my day job is dealing with mergers and acquisitions specifically in the realestate and proptech, and if I have learnt one thing it is that what happened in the past has little relevance to now.
The 2006 deal was at the height of prosperity, cash was freely being deployed, two years later the banking crisis of 2008 would not have yielded a £50 million deal, there would have been no deal.
In 2023, we are entering a similar very difficult economic period, so Jam today is definitely at a premium, because if OTM shareholders hold off, there is no certainty that any other suitor will move forward, and a vulnerable OTM could see the share price then implode.
I have no shares and no commercial ties to OTM or CoStar Group, but I do know a good deal when I see one, Trevor I know a few who with hindsight feel that a deal they did was not the best, but this is drowned out by the huge number who did not do the deal and wished they had. Recent example Purplebricks share price at height 598p, then company itself was sold for £1 a few years later.