Yesterday morning OnTheMarket confirmed its IPO plans but with no firm date. The question remains on whether the float will be successful. How much will be raised and at what valuation? And how will this last roll of the dice for a failing business change anything?
I think it’s fair to say that so far Ian Springett’s grand plan has not received the support he expected from either existing members, new members or investors. Agents who backed the float were given a Hobson’s choice and many picked the one they thought would give them the best chance of getting their money back, slim as that chance may be.
The support OTM received for the decision to demutualise falls a long way short of support for the business model, it actually represents the fastest and possibly the only way out for disillusioned agents. Let me explain.
The feeling was that in its original form OTM was not viable, had failed to reach any of its objectives and certainly had no chance of overtaking Zoopla, much less disturbing Rightmove - who looked upon its efforts with glee. So, putting ideology aside, the consensus was that sticking to the mutual status, even with a change of strategy and even leadership, wasn’t going to work.
Therefore demutualisation and the injection of more money through a float became the only alternative, albeit this would mean giving up on all the principles that led to the creation of the business in the first place. However, this abandonment of principles had to inevitably lead to disillusionment and resentment from the core members. In my view, these members voted for demutualisation in the hope that a successful float would get them their money back.
If you look through the smoke and mirrors, this seems like a smart strategy because it was not necessary to sign an extended contract to support the float, neither was it necessary to accept a share lock-in. Which means that any potential investor has to deal with the prospect of agents selling their shares on the first trading day after the float and publicly declaring their intentions to leave the portal at the end of their original contracts, perhaps less than two years away.
According to a recent article in EAT, there is even a clause in the new OTM contracts that members may not be aware of that makes it hard for the small agents to sell their business. The clause in question apparently commits any purchaser to list all their stock on OTM. So if, for example, a big corporate was interested in buying your business (and big corporates make up a big proportion of the sales that go through), it would mean them having to list all their branches on OTM which they are unlikely to do.
What has surprised me thus far has been the lack of outcry about this situation. I can’t believe that independent agency owners who supported OTM with good intentions are happy with this situation, especially if they are coming up to retirement. But maybe they are unaware of this clause in the contract they have signed or only a few have signed the new agreement?
The kind of incentives OTM are offering new members right now include free listings and lots of free equity to any potential newcomers, including online agents. Think about that, online agents, the very group OTM originally wanted to shut out as part of its business plan, now being courted with free listings and free equity! This surely can’t play well with the core OTM base who are paying high fees and only getting equity on the basis of spend to date! Again, no outcry from agents, perhaps because they are not aware?
Crucially, as far as the prospects of the float are concerned, I’m guessing that quality investors will be very lukewarm on the idea of investing in OTM. The whole investment thesis was that OTM could first get to 10,000 members and then go out and spend their new funds on marketing to gain a wider audience. But having gone backwards to 5,000 branches, the path to 10,000 is now looking quite unlikely.
Why would any agent support a new portal that is no longer a mutual, now for profit, has abandoned all its principles and failed to deliver on any of its promises? It is more likely that many agents feel betrayed and let down and are just waiting for an opportunity to bail out, an opportunity created by the prospect of a float.
The IPO is a last roll of the dice for a weak business in trouble. And it is very telling that in order to win new supporters it has had to effectively disadvantage its original supporters. I think I’m now beginning to understand the motive behind the relative lack of outrage by these supporters, some of whom may see the float as their only way out.
Fool me once shame on you, fool me twice shame on me! Agents should think about that old adage. OTM is no longer a mutual, is now for profit, is actively seeking online agents to join, is giving new joiners (including online agents) far better deals than original members…that seems like a lot to have to swallow.
If this plays badly, I can forsee a significant number of the current members refusing to play along and choosing to stop listing and stop paying at some point. What is OTM going to do – sue them all? In the meantime, any potential investors in the float should beware of how agents may react down the road to this whole situation. Agents are a proud and independent bunch and being let down and made fools of won’t sit well with them.