By Trevor Abrahmsohn, Founder OTM and CEO Glentree International.
You have probably read a good deal of media comment about the ‘smash and grab’ bid by the multi-billion-dollar US portal group CoStar, for the UK agent owned, publicly listed, residential portal OnTheMarket.com (OTM).
I was the original founder of OTM in 2010 and was motivated to start a disrupter site since the two incumbents, Rightmove and Zoopla, were abusing their duopolos position in the marketplace, by charging agents what they liked for their subscription fees and by doing so, made a glutinous profit.
I felt a moral imperative to protect the industry against this abuse and as a result of my unpaid efforts, OTM floated some four years ago with a market cap of £100million and an issue price of £1.65 per share.
As a direct result of woeful under promotion, the shares progressively depreciated from this price and languished at around the 50-60p level up until last week when they shot up to 108p as a direct result of the bid.
CoStar have now secured OTM’s Board approval and 29.51% of the larger shareholders but need 45.49% consent from the balance of the shareholders, before the bid can succeed.
I am strenuously objecting to these bid terms for four reasons:
1. A cash bid for the company at 33% of the original issue price is closer to a ‘mugging’ than a good deal for the original shareholders
2. It denies the original shareholders any upside, which undoubtedly will be enjoyed if, for instance, 25 or 50% of the company were sold to CoStar (or another suiter) since the shares would at least quadruple as the company harnesses CoStar’s financial firepower
3. The control that the agent’s presently have, as a restraining force on Rightmove and Zoopla will be lost if CoStar are the new unbridled, independent owners of the site. You never know, if CoStar replace Righmove as a free commercial entity, they may do to the agents what Righmove are presently doing to them
4. To our knowledge there has not been a beauty contest of potential suitors for OTM, which assuredly would produce an assortment of competitive ‘hybrid bids’ for the company.
By way of illustration, Rightmove is worth £3.95billion and has a 74% profitability on turnover and Zoopla was sold to venture capitalist two years ago for £2billion.
Is it not reasonable to presume that with such a monied suitor OTM will soon be growing towards the £billion mark and beyond? It could well be a ‘giant slayer’ to topple Rightmove from their hitherto unassailable position in the marketplace, so let’s not give up our ‘ticket to ride’.
I wonder if the share options granted to the management at an attractive price, which will deliver to them a fabulous tax-free gain if this deal succeeds, may be influencing their decision to take this feeble, lop-sided bid.
I am not objecting to a deal with OTM, just to the terms which are pedestrian to say the very least.
I was a main board director of the agent owned property portal site Prime Location, which we sold to the Daily Mail Group in 2006 for £50million, denying ourselves a share of the upside, which could have resulted in many times the value of the original shares. Nevertheless, in this case, our shareholders still made 300% of gain on their original investment, so they didn’t moan too much.
Why are we letting history repeat itself by not doing a proper exercise on the sale/partial sale of OTM?
If you are wondering why the terms are so biased towards CoStar, it is no accident that the ‘king making’ merchant bank Goldman Sachs are representing them, whilst OTM have a modest boutique merchant bank, Zeus backing them. This is akin to ‘sending your granny to go ten rounds with Mike Tyson and being asked to bring shopping bags for the dismembered body parts’. Capiche?
I floated my own agency, Glentree PLC, at 16p, many years ago and within six months the shares were £4.50 having increased by 2800% when David Thompson (the 19th richest industrialist at the time) bought a 50% share, so you could say that I have the T-shirt!
The firepower that Mr. Thompson added to my company was unbridled and the parallels with OTM are fairly obvious.
My message to the shareholders of OTM is: ‘Wake up and smell the coffee’. The first rule of any estate agent is ‘properly market an asset for sale and don’t take the first offer that you receive, particularly if it is your own’.
Could this be the greatest opportunity lost since ‘Decca turned down the Beatles’?
This could have a seismic effect on the residential portal market. Stay tuned.
I rest my case!