Foxtons has described itself as a “lettings-focused” business after announcing the acquisition of rival London agency Ludlow Thompson.
The deal is worth £10m on a cash and debt free basis and will be funded through the brand’s existing cash resources and £20m revolving credit facility.
Of this total consideration, £1.5m is deferred for 12 months subject to the business delivering against certain performance targets.
Foxtons said it is now a lettings focused business, with more than 70% of group revenue derived from this section of the market, which is non-cyclical and recurring in nature, and “decouples the group's earnings from the volatility of the sales market.”
Ludlow Thompson operates across seven branches in London, generating more than 70% of total revenue from lettings.
The business was founded 30 years ago.
Foxtons’ board believes the transaction will be accretive to the group's 2024 earnings and deliver an attractive return on capital in line with the group's target return on capital for acquisitions of 20%. Exceptional one-off charges will be incurred in 2023 relating to the integration of Ludlow Thompson into the Foxtons branch network.
Guy Gittins, chief executive of Foxtons, said: "We are delighted to have completed our acquisition of Ludlow Thompson. Having established a leading position in its local markets and a reputation for delivering the best results for customers, it is clearly a business which we believe is a perfect fit for Foxtons. I am very much looking forward to meeting the Ludlow Thompson team over the coming days and welcoming them into Foxtons.
"We are proudly London's largest lettings agent, with a proven track record of acquiring and integrating high quality businesses. Since inaugurating our lettings acquisition programme in 2020 we have grown our portfolio by over 40%, which now stands at over 28,200 tenancies. The acquisition reflects continued progress against our acquisition strategy and our focus on growing recurring lettings revenues, and further supports the delivery of our £25m to £30m operating profit ambition in the medium term."
Stephen Ludlow and David Thompson, co-founders of Ludlow Thompson, added: "Having founded the business 30 years ago, taking the decision to sell the business was a major milestone for us, our colleagues, and our clients. We have admired Foxtons for a long time and Foxtons was a natural fit for us, in fact, our processes, our culture and market positioning is based on the Foxtons model.
"As we retire from the business, we would like to thank all our customers for their long-term support along with our colleagues for many years of loyal service and look forward to seeing the new and exciting opportunities that ownership under Foxtons will bring."
Greg Poulton, an analyst for Singer Capital Markets, backed the deal.
He said: “With our forecasts at the top end of the consensus range and against the current market backdrop, we expect to leave our profit forecasts unchanged at this stage, with the acquisition providing stronger underpinning to these.
“We continue to believe the strategy to focus on growing non-cyclical and recurring revenue streams is attractive and today’s acquisition adds to the Group’s successful M&A track record.
“We remain at buy with a 63p target price.”