OnTheMarket shareholders will vote on whether to accept CoStar’s takeover bid on 4 December. This follows an accepted £100m offer from the US-based firm.

But today, an activist investor has published yet another open letter to estate agents, including shareholders of OnTheMarket Plc, urging them to reject CoStar’s proposed acquisition of the property portal.

Brett Stone, a former partner at US investment bank Cantor Fitzgerald LP who now runs his own holding company, previously told the press that he offered to invest more than £50m in new shares last year, but had his proposal rejected.

Stone, who recently claimed the firm’s failure to retain customers is diluting stakeholders and handing greater market share to rival portals, Rightmove and Zoopla, is stepping up efforts to put greater pressure on OTM with another open letter.

Stone, clearly still annoyed at being rejected as a potential investor in OTM, has shared the following letter, based on his unfounded opinions, to all estate agents in the UK regarding the proposed acquisition of OnTheMarket by CoStar Group.

It is important to note that OnTheMarket deny many of the claims made in the letter, including ‘incorrect and deliberately misleading claims around fees’. They have issued a response, published after the Stone’s letter below.

Key points Brett makes within the letter based on his opinions include:

+ Washington D.C. based CoStar Group’s proposed acquisition of OnTheMarket plc is not in the United Kingdom’s national interest.

+ If the CoStar transaction is approved by shareholders it is likely to result in significantly higher total portal costs for UK estate agents, more than 10,000 of which are small businesses.

+ CoStar’s opportunistic offer significantly undervalues OnTheMarket and institutional and estate agent shareholders should both vote against CoStar’s offer.

+ No deal is better than a bad deal, and ending estate agent’s ownership in the agents’ portal is not the right answer to solve OnTheMarket’s problems.

+ Agents could see their total portal costs rise ‘significantly’ shareholders fail to reject this takeover.

 

Brett Stone’s letter to all UK estate agents re CoStar’s proposed acquisition of OnTheMarket

9 November 2023

To: All estate agents in England, Scotland, Wales, and Northern Ireland.

Dear agents,

Washington D.C. based CoStar Group announced on 19 October 2023 that they wished to acquire OnTheMarket, ending agents’ ownership of the agents’ portal.

Whether CoStar’s proposed transaction succeeds or fails is now down to if you vote and how you vote. The votes to decide the future of OnTheMarket are currently scheduled for 10am and 10.15am on Monday 4 December 2023 at One Wood Street, London, EC2V 7WS.

If CoStar succeed, it will affect you, whether you are a customer, shareholder, both or neither. The purpose of this letter is to provide you with information to assist you in deciding for yourself what, if any, action you should take to protect yourself, the future of your business and the future of your industry.

What happens if the CoStar transaction is approved by shareholders?

All shareholders will be forced to sell their shares to CoStar, and CoStar will own 100% of OnTheMarket’s shares. Agents’ ownership and ability to share in any value created as part owners will end.

CoStar have said they intend to spend £46.5 million on marketing in year one to drive consumers to OnTheMarket, then hundreds of millions more over multiple years.

As you know, the reality is the majority of you today advertise on all three portals (10,414 on OnTheMarket, an unknown number at Zoopla, and 16,093 on Rightmove according to the last reported numbers.) It is highly probable that this will continue due to: i) agents fear of missing out on leads; and/or ii) fear of losing an instruction to a competitor who offers to advertise a seller’s property on three portals instead of two or one. This is unlikely to change anytime soon in the UK system.

Once CoStar have increased consumer traffic to OnTheMarket, it is as certain as night follows day, that they will unapologetically use their increased power to drive up your prices each year to recoup their expenses and generate profits for their shareholders.

Rightmove and Zoopla will likely up their spend on marketing too and keep increasing their prices. This means you will have three hungry mouths to feed and your total portal bills will keep increasing every year, likely faster than if the CoStar transaction were not approved.

Do not take my word for it, CoStar’s CEO sums it up best in a letter he wrote in February 2021 to a USA company (CoreLogic) which they were trying to acquire:

“CoStar Group has a well-established track record of acquiring slow growth companies constrained with single digit organic growth rates and managing them to become fast growth companies, with double digit organic growth rates. In the three years prior to CoStar Group acquiring LoopNet, revenues on average were -2.3% a year. In the past two years, LoopNet has grown almost 20% a year. Already we have grown LoopNet’s revenues more than four-fold. In the three years prior to acquiring Apartments.com, revenue grew at 7.7% a year on average. In the past three years  Apartments.com has grown almost 30% a year on average. Already we have grown Apartments.com’s revenue more than 6.5x.”

I think the message is clear, if you want a significant increase in your expenses (CoStar’s revenue) and you are an OnTheMarket shareholder vote for CoStar. In the case of CoreLogic they opted to be acquired by two private equity firms rather than CoStar.

CoStar have now set their sights on OnTheMarket, the UK and Europe, deploying their shock- and-awe marketing spend tactics and aggressive practices to benefit CoStar and their shareholders, likely at your expense.

IF YOU DO NOT WANT TO SPEND MORE ON THE PORTALS, VOTE AGAINST

Are CoStar a suitable owner?

There are some extremely troubling articles about CoStar from Business Insider, Daily Mail, Forbes, and The Real Deal about the alleged culture and authoritarian working practices at CoStar. For links to articles see: www.linkedin.com/in/brett-stone-ab8909172

Specifically, they make allegations of: a toxic, intrusive, and unpleasant work environment; spying on and surveilling employees; conducting unscheduled video calls to record what employees are wearing; recording break times; humiliating employees; ridiculing and callously firing employees; firing employees for being caught on a smartphone in the office; suppressing negative Glassdoor reviews and descent; and censorship.

And specifically, regarding CoStar’s chief executive: inappropriately offering a private jet trip to a female employee; favouring young women in the office; making women feel uncomfortable complimenting them on their appearance; showing ruthlessness to some women and unwanted attention to others.

Furthermore, In 2020 the United States of America Federal Trade commission sued to block CoStar from acquiring RentPath for $588m as they believed the transaction was illegal, would result in higher prices for RentPath’s customers and fought to protect consumers in the USA.

In 2021 CoreLogic preferred to be acquired by two private equity firms (Stone Point and Insight Partners) for less than CoStar was willing to pay which is unusual; and in 2023 the Murdoch’s ended talks with CoStar on the sale of Move Inc for a rumoured price of $3bn.

CoStar are now turning their attention to the UK.

OnTheMarket can do better, VOTE AGAINST CoStar

OnTheMarket’s board collectively have proven that they are not looking out for you.

Since July 2020, the last results before Jason Tebb (CEO) joined OnTheMarket, 1,831 agents have left OnTheMarket. Despite this poor performance, OnTheMarket paid Jason more than £700,000 in cash and he has taken options over 2,985,412 shares.

To add insult to injury, now Jason and OnTheMarket’s board intend to recommend CoStar’s proposed transaction to shareholders, the majority of whom are small business agents. A sale to CoStar means agents’ losing the ability to benefit from future gains, facing significantly higher expenses, and accepting a price for their shares significantly below what I believe OnTheMarket is worth. CoStar’s 110p per share, £99 million offer is:

– 33% below OnTheMarket’s IPO issue price of 165p, while since 2018/19

OnTheMarket’s revenue has more than doubled; and

– Approximately 2.9 times OnTheMarket’s last twelve-month revenue; it is not uncommon for portal transactions to happen at a multiple of around 10 times or more.

Why would Jason [Tebb] and the board betray your trust and recommend the CoStar deal?

What action can you take to protect yourself?

Vote AGAINST CoStar’s offer if you own shares, even if you only own 1,000 shares your vote matters. Five non-agents who own 21.8 million shares (27.3% of shares issue) agreed in secret with OnTheMarket to accept or support CoStar’s opportunistic offer; it
may benefit them, but I do not see how it benefits the majority of you.

If you intend to save money on fees and leave OnTheMarket, it would still be wise to vote AGAINST the CoStar proposal if you are also a shareholder, to try and prevent your total portal costs rising. Leaving OnTheMarket until they have an honest and competent board
may also be a smart move for shareholders and non-shareholders alike.

DO NOT LIVE WITH REGRET – TAKE ACTION NOW BEFORE IT IS TOO LATE

What happens if the CoStar transaction fails?

First, no deal is better than a bad deal in this case and ending estate agent’s ownership in the agents’ portal is not the right answer to solve OnTheMarket’s problems.

Second, hopefully OnTheMarket’s chairman Christopher Bell will do the decent thing and resign, allowing shareholders (the majority of whom are agents) to appoint an honest competent director who understands digital markets, can protect your interests, and make
sure OnTheMarket’s chief executive officer delivers for you, shareholders, consumers and other agents.

If the prudent thing for you, shareholders , employees and the public is to be acquired, ending agent’s ownership in the agents’ portal, then there are likely multiple groups who would be interested.

A competent board would properly consider and investigate all proposals from multiple perspectives, then put the best one or two forward to a vote. That has not happened here.

Whether CoStar’s proposal, some other proposal, or no proposal is optimal can be debated, but ultimately the best one (from OnTheMarket’s shareholders and stakeholder’s point of view) should win.

What is my interest here?

It can be broken into three areas:

i) concern over the damage CoStar is likely to do to the nationally important UK property commerce category;

ii) leaders who do not consider others and/or infringe people’s unalienable right to liberty and the pursuit of happiness irk me; and

iii) in October 2022 I approached OnTheMarket with an agent-friendly proposal which I believe was a win/win for agents, shareholders, consumers and employees.

The October 2022 proposal included:

i) OnTheMarket receiving between £74 million and £108 million in cash subject to mutual due diligence and board, Panel, shareholder and possibly customer approval; ii) a commitment to invest in product development to benefit agents and consumers; iii) an irrevocable and indefinite cap on agents listing fees; iv) no agent forced to sell their shares or miss out on future value created; and v) OnTheMarket remaining listed on the London Stock Exchange serving UK customers.

OnTheMarket’s board told me they were doing a great job, did not need any additional capital or expertise, and they “place great value on OnTheMarket’s majority agent owned shareholder structure”. On 30-Jan-2023 I released an open letter to all OnTheMarket stakeholders soliciting input, then a second open letter to OnTheMarket shareholders on 31-Jul-2023. OnTheMarket’s board entered into a confidentiality agreement with CoStar one month later on 31-Aug-2023.

Finally, I believe it is important to note that I and entities under my direction, own no OnTheMarket or Rightmove shares at present, and will not profit if OnTheMarket’s share price rises or falls. My interest is the long-term development of the UK property commerce
category for the benefit of its stakeholders, not securities trading or speculation.

TAKE ACTION NOW BEFORE IT IS TOO LATE, VOTE AGAINST COSTAR

Yours sincerely

Brett Stone

 

OnTheMarket has responded to Stone’s letter.

A spokesperson for the company said: “OnTheMarket refutes both that the proposed deal undervalues OnTheMarket and that it is it is likely to result in significantly higher total portal costs for UK estate agents . As previously stated, partnering with CoStar will significantly accelerate our strategy with the clear target of delivering what agents want – the ability to have a real choice on which portal to list with.

“Furthermore, CoStar has committed to fair and sustainable pricing and intends to continue charging agents a small proportion of Rightmove’s current charges. CoStar will bring industry-leading global expertise and significant financial firepower to invest in OnTheMarket, allowing us to accelerate our transformation of the sector.

“We have strong shared values in our commitment to agents who we believe will benefit from unparalleled value and greater opportunities to enhance their businesses.”

Regarding what OnTheMarket view as “incorrect and deliberately misleading claims around fees”, the spokesperson says CoStar’s offer announcement to the London Stock Exchange is committed to fair and sustainable pricing at a small proportion of Rightmove’s. The quotes below are already public in this document and can be used on the record in response to his claims:

“Since its founding in 1987, CoStar has worked co-operatively with brokers and agents in all real estate sectors, with the name “CoStar” purposefully chosen to emphasise its supporting role in agents’ real estate transactions. Throughout years of investment, CoStar has sought to support agents and their businesses and has never sought to disintermediate agents. Similar to OnTheMarket, CoStar believes in fair and sustainable pricing that reflects the value provided by its information and marketplace solutions. CoStar intends to continue charging agent clients a small proportion of Rightmove’s current charges.”

Regarding the attractive valuation, as stated in the transaction documents: “The offer price is at a 93.7% premium to  the average market price in the three months prior to deal announcement.”