It was no surprise that Countrywide rejected Connells’ rather derisory bid of £82m for a business that has to be worth, in my opinion, at least four times that.
Countrywide has made an incredible effort to turn this business around. Its end of year accounts filed in December 2019 showed it had made a £41m loss, compared to £218m the previous year – a major step in the right direction.
Trading figures for the first half of this year inevitably showed a massive hit on income because of the coronavirus pandemic and loss of tenant fees, yet it has managed to achieve an EBITDA of £14.9m – part in thanks due to millions in furlough cash and intensive cost cutting.
The company does have, however, considerable debts to pay back.
It has been a very bruising experience for Countrywide’s dedicated foot soldiers, with branches closing and many staff being laid off to reduce costs. But it had to be done to stop this giant super tanker heading for the depths. All praise is due to their hard-working staff who have put in the graft.
If Connells successfully re-bid, I can see they will be quick to sell off the family silver. If they do succeed, they’ll feel like they’ve won the lottery.
If you consider the financial services, surveying and lettings side of the business, these alone would be worth many millions if broken into separate components and sold off, illustrating that it’s worth far more than the offer that’s on the table.
If it all stayed together, the combined group would have more than 1300 branches, though some consolidation is inevitable. That will be mighty competition for other estate agents across the UK. Would their surveying arm be close to the threshold for the Competition and Markets Authority to investigate?
From an ethical point of view, Connells are owned by Skipton Building Society, a mutual owned by its members. I question whether it is using any of its millions of pounds of furlough money given by the British taxpayer to fund this acquisition.
Meanwhile, the Countrywide share price is fluctuating wildly, currently sitting at 242p as I write – up 21p on this time last week. It was 155p a month ago, and 393p in January. The sooner its future is finalised, under its new top management, the better it will be for all involved.
for a business that has to be worth, in my opinion, at least four times that.
The big question is whether they have the appetite to come back with a higher offer, taking on rival bidder Alchemy in the process.
Countrywide has made an incredible effort to turn this business around. Its end of year accounts filed in December 2019 showed it had made a £41m loss, compared to £218m the previous year – a major step in the right direction.
Trading figures for the first half of this year inevitably showed a massive hit on income because of the coronavirus pandemic and loss of tenant fees, yet it has managed to achieve an EBITDA of £14.9m – part in thanks due to millions in furlough cash and intensive cost cutting.
The company does have, however, considerable debts to pay back.
It has been a very bruising experience for Countrywide’s dedicated foot soldiers, with branches closing and many staff being laid off to reduce costs. But it had to be done to stop this giant super tanker heading for the depths. All praise is due to their hard-working staff who have put in the graft.
If Connells successfully re-bid, I can see they will be quick to sell off the family silver. If they do succeed, they’ll feel like they’ve won the lottery.
If you consider the financial services, surveying and lettings side of the business, these alone would be worth many millions if broken into separate components and sold off, illustrating that it’s worth far more than the offer that’s on the table.
If it all stayed together, the combined group would have more than 1300 branches, though some consolidation is inevitable. That will be mighty competition for other estate agents across the UK. Would their surveying arm be close to the threshold for the Competition and Markets Authority to investigate?
From an ethical point of view, Connells are owned by Skipton Building Society, a mutual owned by its members. I question whether it is using any of its millions of pounds of furlough money given by the British taxpayer to fund this acquisition.
Meanwhile, the Countrywide share price is fluctuating wildly, currently sitting at 242p as I write – up 21p on this time last week. It was 155p a month ago, and 393p in January. The sooner its future is finalised, under its new top management, the better it will be for all involved.
Paul Smith is chief executive officer of Spicerhaart.
Comments (20)
All kicking off Alchemy have secured Hoskings support but not Paterson .Time to see the colour of Connells money
Yes, Alchemy holds or has received letters of intent to support the Proposal in respect of an aggregate of 14,700,048 Countrywide shares representing, in aggregate, approximately 44.8%. Doesn’t have far to go and could even pick up a lot of what it needs from the open market.
Robin Paterson with his 10%+ is elevated to kingmaker and smaller shareholders will be waiting to see what Connells response will be .
All stated below is a personal opinion as to the current state of play in bids made for Countrywide.
The article seems to have anti-bias against Connells, with very little comment on the offer made by Alchemy.
Connells offer is £82m, but on top of that a guarantee to pay off the £90m debt in full which, in effect, means its offer is worth £172m to CW shareholders (already halfway to the suggested 4x offer valuation!).
Alchemy’s initial offer of 200p a share was derisory, and a blatant attempt to frighten directors and shareholders into accepting due to the looming repayments required on the £90m debt. Alchemy guaranteed to pay off £50m of CW debt with this initial offer. Since Connells 250p a share offer, Alchemy ‘increased’ its ‘offer’, included in which was to ‘offer’ 250p a share to all shareholders that wished to sell their shares. This offer also stated that it would ‘negotiate a revised offer to CW’s lenders that would result in a lower repayment than the £50m debt in its original offer. There are though exceptions to the shareholders who they will accept to purchase off at 250p a share. Alchemy require ‘certain’ institutional shareholders to NOT accept the 250p share offer. Alchemy will then recapitalise CW to the tune of £70m through the issue of, ‘15.6 million ordinary shares to Alchemy Partners for an issue price of 225 pence per share’ and, ‘an open offer of approximately 35 million ordinary shares at an issue price of 100 pence per share’.
As can be seen, the Alchemy offer is convoluted and conditional on many varying, at this point in time, imponderables.
A third option is that CW negotiate its own refinancing package and rejects both Alchemy and Connells. Given its directors past efforts on refinancing CW, this would seem a virtual non-starter from shareholders perspective, even given the recent resignations.
That CW will be sold seems in little doubt, but to which offer? If Connells had even the slightest real interest in buying CW, it will increase its bid. Given how increasingly convoluted the Alchemy bid has become, it would seem to indicate that it is not far from its limit, which would further indicate that Connells might not have to offer much more to knock Alchemy out of the game. Shareholders may be hoping for a 350p+ a share offer, but that would seem a bit optimistic given the current economic climate and, the impending cessation of stamp duty concession and its affect on the housing market and prices. CW also has the big debt repayment overhanging its continued business operation.
The jewel in the crown for both bidding parties, but more so for Alchemy, is CW’s financial services. Connells would also benefit from the estate agency whereas Alchemy could be more likely to sell that off piecemeal asap and concentrate on the financial services.
Connells is an experienced and well run estate agency. Alchemy is a company that specialises in investing in distressed and undervalued businesses. It aims to buy low and sell high. Nothing wrong with that, but it depends what you want for CW, its employees and shareholders. Do you want a continued estate agents, albeit reduced in size where existing Connells agencies exist although this may not be as bad as some think due to limited situations arising. Or, do you want CW’s estate agency totally broken up and its financial services eventually sold on at a vast profit to Alchemy.
CW’s agency network, financial services and employees could remain largely in place, but much better run, through Connells.
As I stated at the beginning this is all my personal opinion, but then again so is the original article and the many comments on that article.
You makes your choice and takes your money ……..
“A third option is that CW negotiate its own refinancing package and rejects both Alchemy and Connells. Given its directors past efforts on refinancing CW, this would seem a virtual non-starter from shareholders perspective, even given the recent resignations.”
Many shareholders think this is the best option especially as the brands have performed above expectations. The bank balance is looking a lot prettier today
Unfortunately the BODS with their back to the walls arranged a new finance package in Dec 2019 having foolishly agreed terms on the basis that the monies would be arriving in from the sale of LSH .
That of course didn’t ‘happen so already on the back foot They then careered into a merger with LSL still hoping that the deal with the Dane would materialise
Another £3.1m abortive cost bill with LSL on top of the fees still running on LSH .All self-inflicted because they failed to do due diligence
No wonder the finance source was concerned
So with a decent set of BODS with say a capital injection of £20m which I am sure shareholders would be happy to divi it there should be no problem arranging a medium term finance plan on the rest
It does seem highly surprising in a year where the tax payer has had to help fund most industries during the pandemic (rightly so to help firms through it all) that there are some companies out there doing a little bit of early Christmas shopping. Does this deserve a bit more scrutiny I wonder. Highly profitable firms I know such as the class act that is Savills and KF have returned the benefit.
Interesting to note that you only ever pop up to comment if there’s an opportunity to say something negative against Connells. Is there a story behind that?
Post on lots of things but I have a little insight into this firm and the inner workings so I’m well placed to have an opinion.
May i suggest you read Skipton H1 accounts
Hmmmm, MajorTom posts on lots of things, yet seldom seems to post on Haart – which is odd given that he’s a director there? So, will Haart be giving back their furlough money or perhaps use some of it to compensate all of those people that they sacked via a conference call? Not exactly the actions of a class act! Care to post on that or perhaps too busy posting on Connells matters and reading Skipton’s accounts?
Has Chipsonshoulder morphed into life on mars. May I suggest Aladinsane.
Savills are a class act and most would agree with me. I have no influence on what Spicerhaart or any other Estate Agency firm does I can assure you,
I do or rather did have a lot of money invested in Cwd which is now worthless to me at 2.50 so I think I’m entitled to be anti sale at any less than double this plus
majortom1 If your holding is worthless to you at 250p, it’s not going to make much difference if you get twice that is it?
Alchemy’s bid, if successful, will reduce value of shares when it makes the open offer at 100p a share. There are two reasons Alchemy will make an open offer at 100p a share; 1) because it knows no-one will buy any if it was priced any higher and, 2) to enable itself to purchase more shares at much lower price than 250p, meaning it gets CW even cheaper!
There will only be one winner if Alchemy’s bid is successful, and that is Alchemy itself …….
Finally, if your CW really is worthless to you, there is always the option of donating to the holding to charity, which I am certain would be most grateful in these exacting times for them. Most brokers accept holdings for charities and make no charge for transfer, or cashing in on charity’s behalf. I have done this myself and is easily completed.
Enjoy a safe and merry Christmas.
What is the true cost of the bid? How much debt will Connells take on, if successful, in addition to the £82M bid? The bid price itself doesn’t cover the value of CWL’s survey and financial divisions plus LHS if offloaded leaving the sales network at zero cost and much cheaper than ‘cherry picking agencies around the country’.
The Prudential and others have shown that purchasing agencies and paying off the partners doesn’t work. Succesion planning that transitions an agency rather than buy and running it wouldn’t see vast wads of cash wasted on low yield annuities or handed over to HMRC in inheritance tax
Robert Agreed.
CWD themselves are a prime example of how buying in revenue with cold cash doesn’t work out well,.especially with borrowed money
Little more than golden goodbyes to senior partners for a lifetimes work never to be repeated .Thanks very much for the fat cheque andgoodnight
The probem any purchaser has is keeping happy those fee earners who hold no or little equity .The powerhouse .The carpet whipped from under their feet as their aspirations for equity has gone out of the window
However there is a whole industry full of shakers and movers who feed on mergers and acquistions telling a different story .Theway of all flesh
Provide the aspirational fee eraners with the real prospect of owning a future, applying the economies and efficiencies that are aparent in Connells and £82m goes a very long way and builds a network of instructions that starts to come close to what IS possible.
DEBT
“As at 30 June 2020, the Group’s net debt(3) was £47.3 million (FY 2019: £82.9 million) against available liquidity of £135 million. The underlying net debt, after adjusting for HMRC deferrals, was £91.9 million. Net debt/adjusted EBITDA(3) was 2.1x (FY 2019: 3.4x)
This is the latest update as of 30.6.2020 .it would be safe today to assume that figure is reduced as completions have kicked in and activity continuing in the group .
You would have expected the BODS to have updated the situation a few weeks shy of year end for the benefit of all parties
So perhaps Connells will require an investment of circa £170m + to arrive here with a clean slate with their current offer
You would also expect the sum of all parts to exceed this figure if broken up
At 350p a share this puts them in at around £200m
With £82 million and a fraction of the effort and management required Connells could probably cherry pick a set of agencies around the country, small and medium size firms who are doing consistently well on their #local patch but who have reached an age where they’re at a crossroads, perhaps one partner has retired and the sole principal who’s just a bit younger is working harder and longer hours than they need to.
I reckon providing financial support, economies of scale savings on things like portal spend and software Connells could grab hold of a sales and lettings register far greater than the CW register but without all the baggage.
£82 million might be a cheeky bid but they’re in a place where it’s good if it happens or good if it doesn’t
You’re right about the cherry picking Robert and once the stamp duty holiday ends transaction volumes will fall. If, like in 2008 and 2009, exchanges fall to half of the current number, the price paid now for any business needs to reflect what may or may not happen early next year.
The veteran agents who started their agencies in the MIRAS winter (89,90,91,92,93) have done their bit and many are coming to a crossroad where they are the real value in the business. Providing a succession plan where a business can be transitioned fully or partially to a new owner is often only blocked by funding.
£82 million is significant fund that could provide a succession plan for a large number of agencies who’d retain their motivation and drive to succeed – I’d sooner spread bet that sort of cash on multiple deals than a one off spin of the wheel.
Connells
“The big question is whether they have the appetite to come back with a higher offer, taking on rival bidder Alchemy in the process.”
It would be a fruitless exercise taking Alchemy on without the support of major shareholders Hoskings who hold 20%+ and/or Catalist (Robin Paterson ) who has 10%+. I should imagine discussions are currently taking place in earnest with both parties.Connells have until Monday to table a further bid.
Fair play to Jeremy Hoskings and his team leavering themselves into a kingmaker position holding all the cards. Not only will Connells need to substantially raise their offer but perhaps offer them part of the prize .
Robin Paterson is no pushover either having negotiated some cracking deals in his career .I should imagine the softest thing about him is his teeth. He will no doubt be seeking support from investors to reach for the prize . Having previously championed Hamptons his Sothebys International which he acquired in 2014 would fit in with them like a glove.
It is also another bite of the Countrywide cherry for Alchemy who actually only hold just over 2% but no doubt have the support of Oaktree. They joined with restructuring specialist Oaktree and fund Polygon to take control of Countrywide last time around the houses in 2009 .
Countrywide having been bought by US private equity firm Apollo less than two years previously for about £1bn !
Alchemy might be rueing the day that they arrived on the scene here this time with such a lowball offer as it resulted in the makeweight Long leaving the ship early.
Bowcock the new caretaker CEO is cut from a different cloth and unlikely to be a pushover in negotiations Happy days.
Opportunity knocks
“For a business that has to be worth, in my opinion, at least four times that.”
Perhaps a little bullish as that means an investment today of £400m + to arrive with a clean slate but yes Connells are going to have to come up with something tasty over and above 250p . 350p +? They don’t want to reach for the rose and come out with a handful of thorns
Plenty of action still to come.fasten your seat belts