By Trevor Abrahmsohn, Glentree International.
I founded OnTheMarket.com (OTM) in November 2010 following a secret meeting which I set up with ‘the great and the good’ of the estate agency industry, in the Cellar Room of Zafferano Restaurant in Belgravia.
My driving force was that I was sick to my stomach with the ever-increasing tariffs charged to my agency, Glentree, by Rightmove and Zoopla at the time and I thought it would be an excellent idea to assemble twelve of the heads of the most illustrious estate agents across the UK.
As a mark of huge respect to me, all the guests turned up and we sat around a huge table. They thanked me for inviting them but at the same time asked why they were there.
Metaphorically speaking, I told them that “as China plans for the next 50 years, their estate agency industry, under present arrangements, is planning instead for the next two weeks, in digital portal terms.”
In unison, they asked what I would suggest was the solution. I responded by telling them that we need to start our own portal, and from this auspicious meeting gave birth to OntheMarket.com.
A question reverberating in my mind was, “why did it take a single-branch agency in northwest London to give the spark of life to this well understood idea? But there it is.
After several years of development, the company was floated in February 2018 at an issue price of 165p per share, valuing the business at £29.3million. Unfortunately, over the next five years, the share price has ebbed away to around to around the 50p/60p range, until very recently.
CoStar Bids
Now we are told that the US group CoStar CSGP has bid 110p per share in cash, for the entire share capital of Onthemarket.com, which equates to a tidy sum of £100million.
According to the statements issued by CoStar, if the bid is successful, it intends to invest £46.5million into sales and marketing in the first full year of trading and their aspiration is to rocket-propel OTM to knock the behemoth Rightmove off its perch, which at present is the largest and most profitable portal in the industry.
Disrupter Site
I set up OTM in order for it to be a disruptor digital site and to break up the cozy duopolous stranglehold that Rightmove and Zoopla enjoyed in the marketplace.
Although OTM has served to refrain the two other sites from ‘having their wicked way’ with estate agents, if this offer is successful, it would certainly ‘put the cat amongst the pigeons’ and is it no wonder why the former cast iron Rightmove share price has dropped?
From trading information to December 2022, Rightmove had a humungous turnover of £332.6million and enjoyed a gluttonous operating profit of £241.3million, representing an eye-watering profit margin of 72.55%. Given that Zoopla was acquired by the US private equity firm Silver Lake for £2.2billion, £100million for OTM is a veritable bagatelle for Costar.
It is self-evident that it is a cheap price for this acquisitor to enter the residential market fray since it would cost them a great deal more to start their own site and would consume many years in the attempt.
Don’t Repeat Folly
Agents sold Prime Location to the DMGT Group, headed by Lord Rothermere, for £50million in and around 2006 (I was on the Board of the company), and many complained then that it was undersold, particularly when it was combined with other digital sites to form the giant portal, Zoopla, run by Alex Chesterman.
We don’t want to repeat this folly, and as a shareholder with 366,234 shares, I personally would not accept this offer if I were on the OTM Board, since there must be more in the kitty to be had from this rich institution.
Although OTM maybe leaking agents after the golden handcuffs were released 18 months or so ago, nevertheless it is now showing interesting profits, and the cash reserves are bulging under the expert stewardship of the CEO Jason Tebb.
CoStar must be licking its lips in anticipation of hoovering-up this bargain basement deal, which gives them instant market share and who can blame them.
My advice to shareholders is that there must be a few more golden nuggets in the treasure chest to be enjoyed, before calling time on this offer.
Read Part Two: CoStar’s Bid for OnTheMarket.com for £100million