There’s barely a week that goes by when you don’t read about an estate or letting agency business that’s been acquired by a competitor – but it is very rare to find a press release or someone ‘on the record’ that is prepared to tell you what that business actually changed hands for.
Everything seems shrouded in secrecy – why is that? Probably because the acquirer doesn’t want other potential acquisition targets to know what they paid, particularly if they paid ‘good money’ for it – expectations can easily be set and make future acquisitions more difficult.
As a rule of thumb, having bought and sold a number of businesses in this space and advising on many more, typically a lettings business will change hands for around 1.5-2 times the annual lettings management income.
So, if you have a portfolio of say 100 units each paying £100 a month to manage that’s £120,000 annual income. You could therefore expect to sell for somewhere in the region of £180,000-£240,000.
However, if the company has meaningful assets such as its own office building you could expect to receive more. Or if there is any significant liability such as large creditors this would usually be deducted at acquisition stage.
At JWD Capital Partners PLC, we say that most transactions tend to be ‘goodwill’ purchases whereby the acquiring company won’t acquire the shares of the current business, but purchase from it the goodwill – reducing any future litigation or liability.
What’s more, there is more value in a business with a strong brand that is well established and has been around for a long time compared to one that started up a year ago.
There is also the ‘risk’ factors, too – is the owner wanting to exit (so lots of goodwill just walks out of the door)? Or does the firm have some major clients – for example a landlord with 20-plus properties - that if they left would dent your income significantly? Or do they have high risk stock like HMO or student properties?
So, what about estate agencies? In my experience ‘sales only’ operations don’t change hands for a lot of money. I’m aware of one deal that is about to be announced with only a handful of lettings properties so principally a sales agency with a brand name that’s only been around for a short time, has several offices and is in difficulties with around £250k in its pipeline.
This agency is likely to sell in the region of £80,000.
Here are a few other deals I’m aware of:
- A multi-office agency in the north with a small lettings book and ‘middle of the road’ in terms of marketshare - £300,000.
- A very well-established multi-office sales and letting agency with over 1,000 units under management bought out by a corporate recently for over £5 million.
- A one office sales and letting agency, established for over a decade, with 1,000 units in one of the Northern Powerhouse Cities sold for £1 million.
Then if we look at the online/hybrid world, eMoov has raised significant sums of money by technically valuing its business at millions, while Purplebricks has a current market capitalisation that sits at over £1 billion.
As you can see there is no real science to it – just like in estate agency a property will sell for what someone is prepared to pay for it. A business may have more value to one person than to the next - what one buyer may be prepared to pay for it may be different to another.
We tend to get approached by a number of insolvency practitioners about ‘distressed firms’ and sometimes sales are forced because of circumstance – maybe debts are mounting and a quick exit/solution is often needed to avoid insolvency. These sorts of sales tend to be next to nothing but if you only buy the ‘good’ bits you can pick up a bit of a bargain.
When a business owner is contemplating an exit but is not in a ‘rush’ to sell, taking time to prepare it for sale and maximising its value is key to selling for ‘top dollar’.
*Paul Seabridge is the CEO of JWD Capital Partners PLC, a corporate finance firm that specialises in mergers, acquisitions and turnaround of estate agency/lettings businesses.