Countrywide’s takeover by Connells has been sanctioned by the High Court and is expected to be completed on Monday.
Connells agreed terms to acquire the business at 395 pence per share on 31 December in a cash deal that values Countrywide at about £134m.
The deal will see all of Countrywide’s lenders repaid in full and additional investment will be provided, giving the business the financial strength to recover from the under-investment of recent years.
The acquisition was approved by the Financial Conduct Authority last week.
The takeover provides Connells with a major opportunity to increase market share and diversify income streams, but it is also a strategy that carries a high degree of risk, according to credit rating Fitch.
Fitch affirmed the credit rating of Connells’ parent company Skipton Building Society at an A-minimum negative outlook.
Fitch says the transaction offers huge opportunities ‘if executed well’, as it could help broaden Skipton Building Society’s revenue streams and improve the society’s structural profitability, supported by cost synergies and the fee-generative and capital-light nature of the businesses.
However, Fitch says that it sees ‘execution risk’ in the integration of the two entities’, as well as the society’s risk appetite, given the large exposure the society expects to build towards its estate agency business and in turning around Countrywide given its three-year record of net losses.
As part of the transaction, Skipton Building Society is providing Connells with a £253m intercompany loan, which will be used to fund the acquisition, repay Countrywide’s outstanding debt and provide additional working capital.
Fitch says: “We believe that the intercompany loan being provided to Connells does not significantly impact our assessment of SBS’s asset quality although it brings some risk concentration as it accounts for around 17% of the society’s common equity Tier 1 (CET1) at end-1H20. It is also unsecured, explaining the negative trend for the risk appetite factor should the exposure increase if further investments are needed or it does not gradually reduce.”
The dreaded Ratings agency.
You only have to look back at their role in the American subprime mortgage crisis of 2007-08 which led to the recession of 2008-09 in getting it wrong to take that downgrade with a large pinch of salt .
Fitch says the tranasaction offers great opportunities “If executed well”
Priceless .
In sharp contrast to Connells the demise of CWD is primarily attributable by some highly questionable decisions by CWD Directors . In recruitment ,execution ,abortive sales and mergers and borrowing great shedfuls of money to buy in disappearing revenue.
Rather than creating any synergy just chaos
Fitch refers to the three year net losses of CWD .However these have been entirely to do with writing off the tens of millions of goodwill which was bought in rather than operations at brand level Goodwill disappearing faster than the ink drying on the payout cheques to various businesses .
The grown ups Connells with a market leading track record having been watching CWD like a hawk for years .Choosing the moment when things were finally on the turn to strike a blow and a highly profitable H2
In one fell swoop getting the whole country covered .
It sounds as if Fitch should have looked a little bit more under the bonnet .
Since then the M&A in the sector has gone into overdrive with swathes of private equity looking for a piece of the action Connells with 1st mover advantage
This could well be the deal of the decade
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I have to say this is an incredible time to be in our industry; the multi level power play is incredible to watch and attempt to figure out which are connected and which aren’t
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Ooooew touched a nerve! Funny!
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Would guess someone who feels they should be involved in Multi Level Power plays but is busy pressing their nose against the glass and furiously trying to keep themselves relevant.
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There’s bound to be an opinion piece next Tuesday!
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No offence each to their own but personally I could notr care less what a load of corporate wallahs are doing or not doing
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You won’t offend me Jan.
The power-play has to be something small agents ought to take notice of as what the “corporate wallahs” do has an impact on how they adapt their business and sofa spiel to a changed competition.
In a lot of town corporate offices dominate the area, in other areas they have no agencies at all. Keeping an eye that Joe Blow & Co is no longer an independent agent can be factored into the market appraisal
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Worrying more then anything. All this consolidation of well known brands simply means the industry is struggling.
We have purplebricks and the payanyway model that rightmove supports, to thank for that.
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Countrywide was a shining example where those outside the industry arrived on the scene forgetting the maxim “If it ain’t broke don’t fix it ”
Borrowed milions to dish out to buy in existing estate agency businesses and wondering why revenue has vanished when those who drove the buiness disappeared to the beach clutching a fat cheque .
Who can forget Platt’s immortal words
“Our customers don’t look at us and compare us to other estate agents, they compare us to other retailers. We’re in retailing, the same as Tesco.”
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The blame for CW downfall is solely Alison Platts fault.
She not only changed direction to retail (which a basic neg could see was wrong), She ousted all senior management with EA experience and replaced with retails such as pizza express, DFS and Carphone warehouse.
Even when it was obvious it was not working she continued down that path not rectifying her mistakes. So bad the share price fell to pennies.
This was a 5 year decimation of a once great brand
Sadly she will not suffer, she will just jog onto her next position.
Connells, will do fantastically out of it, increase market share, build FS , surveying and conveyancing whilst taking out their major competition. WELL DONE Connells!
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She certainly expedited the downfall, but it was already heading in that direction before she got there.
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The Purple machine is starting to collapse. There people have been treated poorly and there leaders are full of mistakes and more focused on there own job titles and careers then doing the right thing.
Watch this space
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I think the rating is fair enough and pretty balanced.Countrywide with all its brands and cultural issues is an animal that will be hard to tame.Difference when Sequence was acquired was the strength of the Connnells management team that allowed some of the most charismatic leadership in agency help sort out what was,at the time,referred to as a business that was “as mad as box of frogs”.That team no longer exists ,most having taken their millions and also retired to the beach (that beach is getting crowded) and deservedly so
Countrywide is a whole different “box” to sort out.
CWD of old we all know was a great business all built on great people-and who in the main (if they were great) have left a few years ago
So one is not buying the talent that made the business once great.Its going to be one hell of a job sorting this one out and whilst there will be immediate gains it would be naive to think there is not a big potential downside to this for the Skipton ;hence the downgrading which is really not a good look for them.
After all its not anyone’s money here bar the Mutual members
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Having worked for Countrywide in the 1980’s when it was second to none, and its micro and macro management of the business was visionary, and having worked for Sequence part of the Skipton (Connells) group I found myself in the same vertical. Clear objectives from the tiny c-suite, transferred to the grassroots, known KPI’s and a shared esprit de corps, all focused on growing market share and profit. No gazing at the navel, no vanity projects, and anything experimental – make sure the cost base is with the other party, like the recent closer tie with ZPG, let them shoulder the investment. Countrywide once was the king of strong culture, high fees and high service, Connells runs like clockwork, so I see only value in this deal. Putting aside the huge financial services element that is the real crown jewels of the whole acquisition.
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