OnTheMarket has finally completed its stock market float, with less capital raised, at a lower than planned valuation and, as I write, shares down nearly 8% on the opening day.
Now is therefore a good time to consider the likely impact and future of this controversial business in its new publicly-listed guise.
Well, first off, if you consider markets to be a good judge of value, it appears the initial judgement at least is a thumbs down. I think the markets have taken their cue from the failure to reach the target raise of £50 million and the substantially lower valuation they have had to accept as a result.
The share price is merely taking a cue from these facts and unless the markets see hidden value, the future will likely be more of the same.
Until today, retail investors were not allowed to see the company’s prospectus, or so I am led to believe. Apparently, the offering was for institutional investors only.
A quick read through gives some clues as to why OTM probably didn’t want the public or the membership to read some of the caveats and threats spelt out in the prospectus.
Particularly the threat of legal action on multiple fronts, from disaffected members as well as the well-known anti-competition case that OTM won against Connells but is now subject to a potential appeal.
It’s important to note here that not only have Connells won leave to appeal, it has also won the right to introduce new evidence. I have heard people say that Connells won’t go ahead with its appeal but I disagree, I think it will and for several reasons.
Not only are they rightly worried about restraint issues, they are also almost certainly concerned about the highly restrictive nature of the new five-year agreement OTM has with some members which oblige them to ensure any future purchaser takes out an OTM agreement on similar terms and lists all their stock on the portal.
There is of course also the threat of a class action by disaffected members. which I understand has not gone away either.
Another strong negative indicator in the prospectus is the fact that OTM has been losing, not gaining branches, normally investors want to see momentum, just not in this direction.
To my mind, all these things add up to a pretty strong case not to buy OTM shares and to sell any you have while there is still value left in them.
Here is a small extract from the prospectus itself:
Gascoigne Halman applied to the CAT for leave to appeal the judgment on the competition issues.
Leave to appeal the judgment was refused by the CAT on 6 October 2017. On 26 October 2017, Gascoigne Halman made an application to the Court of Appeal for leave to appeal the CAT’s judgment which was served on Agents’ Mutual on 27 October 2017.
The application for leave to appeal was granted on 20 December 2017. The date of the hearing of the appeal is not yet known.
There is a risk that the appeal might be successful. If such an appeal were successful, it is likely that Agents’ Mutual would not be able to recover its costs and might be required to pay a proportion of Gascoigne Halman’s costs.
In addition, Agents’ Mutual might not be able to enforce any listing agreements which contain the OOP rule and other members might be prompted to bring proceedings against Agents’ Mutual to recover listing fees paid.
Any of the above outcomes may therefore have a material adverse effect on the Group’s business, prospects for growth and/or financial position.
Agents’ Mutual has additionally received correspondence from solicitors acting on behalf of approximately 40 agents regarding various allegations relating to the listing agreements. The claims have not been pursued with any diligence.
The last correspondence was dated 10 August 2017 and no further correspondence has been received as at the latest practicable date prior to the publication of this Document.
If the claims are pursued any potential dispute could require the investment of significant management time, could cause negative publicity for the Group and could result in the diversion of the Group’s resources, which could have a material adverse effect on the Group’s business, prospects for growth and/or financial position.
It may be that the best-case scenario would be for Zoopla to buy OTM, now that would be an irony.
This may sound a bit off the wall, but think about it. If Zoopla were to buy OTM, it could use the strong support of high street agents to strengthen its position and provide a stronger, more credible opposition to Rightmove - something it was well on the way to doing before OTM came on the scene.
You never know it could even create something that differentiates high street agents in a positive way that shows the public where we add value…
Certainly, it could be argued that OTM as an independent third player is the worst possible outcome for agents.
It leaves agents disunited, without a strong voice and with some having to pay towards the proposition for years to come.
The way I read it, the main beneficiaries of the current offering are Ian Springett and ITV.