Purplebricks is launching in America and yesterday evening successfully raised £50m through new shares to fund the move. The placing was “materially over-subscribed”, Purplebricks said this morning.
In a bombshell announcement to the London Stock Exchange yesterday shortly after the close of trading, it announced it would be raising the money to enable expansion in the USA, likely to be in the second half of this year.
The announcement came at 16.57, with the company saying it hoped to complete the bookbuilding exercise by 7pm – giving just two hours for investors to subscribe for new shares at 220p.
Michael Bruce, chief executive of Purplebricks, which launched in Australia last September, said: “We are proud to announce our plans to launch Purplebricks in the US, a market we estimate to be worth some US$70bn in annual estate agent commission.
“Our customer proposition of high quality service and value, delivered through the combination of technology and people, is driving irreversible change in the UK and Australian markets.
“We are confident that with our understanding of the US market and our experience from having already launched in two markets Purplebricks can build a significant business in what could be one of the most fascinating and rewarding real estate markets in the world.
“For the realtors we recruit Purplebricks presents an exciting new platform to build scalable, profitable businesses in their own dedicated regions, supported by our strong technology infrastructure and marketing reach.
“For US customers we are seeking to offer a better deal in selling and buying their homes, with a more convenient, transparent and cost effective service.
“As with our UK and Australian launches we will adopt a state-by-state roll out strategy.
“The funds raised through the Placing will not only be deployed to build the Purplebricks brand in the US but, also, the people and infrastructure needed to manage rapid growth in that market.
“With trading in the UK and Australia in-line with the board’s expectations and with the development of the US opportunity, we are proud of the team’s achievements to date and excited for our global future.”
Net proceeds of the placing of shares, worth around £48.7m, will be used to establish Purplebricks in a number of key states. This will include finalising the recruitment of the management team in the US, the raising of consumer awareness, and the recruitment and training of Local Property Experts in the US.
The US, as the Purplebricks’ stock market announcement made clear yesterday evening, has a very different estate agency market from the UK.
In the US there is typically both a listing agent acting for the seller and an agent acting for the buyer. The listing agent gets a commission of up to 7%, with the buying agent getting a 2-3% share. Multi-listing is common.
The statement said that Purplebricks will be looking to recruit some of the most experienced real estate agents in the US: “The Purplebricks model should allow agents to spend more time focusing on looking after customers and selling homes, rather than a significant proportion of their time being taken up prospecting for the next listing.”
The statement said that Purplebricks has so far sold £6bn of property in the UK and has a 67% share of the online estate agency market.
In Australia, it said that it has over 50 Local Property Experts and that it has grown faster than any UK regional launch.
Few, possible no, UK agents have ever succeeded in the US market, and vice versa.
Foxtons, notably, lost money when trying to crack the American market.
In early reaction to the news Eddie Holmes, chairman of the UK PropTech Association, said Purplebricks’ US plan could only be seen as “a vote of market confidence for the business model and management team”.
He said: “It will be interesting to see if the model works as successfully as it has in the UK, if not more so, in a maarket with higher average fees and a natural tendency towards self-employed realtors.
“This is tremendous news for the UK proptech industry on a micro level and is truly a welcome export story during the upheaval of Brexit.”
Yesterday, before the announcement, Purplebricks’ shares finished the day at 226p – over double its launch price of 100p in December 2015. This values the company at £559m compared with, for instance, Countrywide’s market cap of £405m.
Reaction to the news of the successful placing sent the shares rocketing over 17% in early trading this morning to above 265p.
For more comment, see our ‘NEWSFLASH’ story below, when EYE broke the news yesterday evening.