Foxtons announced last month that it was selling the sales business of Douglas & Gordon to its current chief executive officer James Evans for a nominal consideration less than a year after buying it almost a year ago for £15.5m.
Under the deal, which Foxtons shareholders are expected to approve today, the London-based estate agent will sell D&G’s sales business and all of its branches, while integrating the D&G lettings business into the Foxtons network.
Foxtons explained that while the D&G sales business has grown since acquisition, it contributed an operating loss of around £1.9m to the group in 2021.
The company said its board had reviewed a number of options for addressing the profitability of the sales business, including continuing to run D&G as a separate brand, closing down the sales business and disposing of the D&G sales business.
It concluded that disposing of the sales business to D&G management and integrating the lettings business into the Foxtons network was the most attractive option, mainly because Foxtons has an established branch network which overlaps significantly with D&G’s branches.
So has D&G CEO James Evans got a good deal?
“Very, very much so,” said Russell Quirk.
“I thought it was an unbelievably good deal for James,” he added. “Effectively he [Evans] has been given £3.8m to take the sales business.”
You can watch the full interview below:
James will sleep easy knowing Russell thinks it’s a good deal!!!
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Foxtons stated in their letter to shareholders that when they bought D&G, they did not attribute any value to the £1.9m loss-making D&G sales business, its associated branch network, its head office or the head office infrastructure.
Furthermore, any disposal by Evans within two years means he has to pay a sum equal to 50% of any consideration received, capped at £3.715m.
Lots of restrictions on staff and dealing with landlords for a period of four years makes this an excellent deal for Foxtons less so for Evans. His only option, I believe is to buy some small letting business without delay, however this is easier said than done.
Foxtons considered closing the D&G sales business down, but this would have been the more expensive option. Commercial leases are liabilities, not assets.
I can’t help thinking of the sale of Arcadia Group to Dominic Chapell for £1; remember how that ended for everyone.
How a loss-making sales business, with almost the same overheads as before, is now going to be turned around will be interesting – this is a crowded market in London. But, while I wish Evans well, I think he might just have bitten off more than he can chew.
As a shareholder, I’m entirely delighted with the sale. Finally, Foxtons have rid themselves of a loss-making part of the business. Passed any future staff liabilities and commercial lease obligations onto a third party. In short, what’s not to like?
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James Evans joined D&G from Foxtons in 2015. He persuades the shareholders to sell to Foxtons last year and then gets gifted the sales business from Foxtons plus £3.8m in cash a year later. Why did the Foxtons board not seek offers from elsewhere to establish if there was a better value for shareholders ? Not sure this passes the sniff test!
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I think if you read the Foxtons letter, more carefully, which was sent to the shareholders it explains the options rather clearly.
Why did 99.8% of shareholders today vote for the sale, if there was such a smell?
Firstly, it was the major shareholders of D&G that agreed to sell to Foxtons not Evans, (from memory he had either a very small shareholding or no shareholding whatsoever in D&G).
Secondly, when Foxtons bought D&G they paid nothing for the sales business, again read the letter.
Thirdly, D&G sales is loss making (£1.9m last year). The sales turnover is stated at £6.8m or approximately £380,000 per office. Do the maths. They will burn through the cash left in the business in a matter of months.
If there was a serious buyer why have they not come forward? Foxtons would have to disclose this to the shareholders. There is nothing, a PLC would not do without speaking to lawyers.
The fact no other buyers have been mentioned is probably because there are no other buyers, Most of the other firms in the areas D&G work, are already covered with their own existing offices. List the potential buyers and ask yourself why would for example Marsh and Parsons, Chestertons, Hamptons or Dexters want more (loss-making) offices where they already have a presence?
If Evans sells the business in the next two years, he has to pay a sum equal to 50% of the consideration received up to a limit of £3.715m. It seems he has also given a personal guarantee to this effect.
I suggest everyone waits and see what happens in the coming months.
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