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An appetite for growth
publication date: May 1, 2010
The property market is still in varying degrees of disarray, yet some of the UK’s most successful property agencies clearly believe that the ongoing difficult financial situation in the UK is not a barrier to success – which is excellent news for the whole industry. PROPERTYdrum interviewed the Managing Directors of three very different property companies, all have an appetite for growth.
What are their goals? How is their market developing, what are the challenges?
Bob Scarfe of Countrywide Estate Agents, (sales), which has recently acquired the franchise to develop the Sotheby’s International Realty brand in the UK.
Paul Weller of Leaders (lettings) which recently completed an MBO and restructure injecting new capital for growth from Bowmark Capital, RBS and Lloyds Bank.
Dominic Agace, of Winkworth (sales and lettings franchise) which has ambitious plans for growth following their AIM listing on the LSE in November 2009.
Q Times are still tough in the property market, are you confident that your particular sector is set for dramatic growth?
Paul Weller, Leaders. “Leaders is working hard on expansion plans to at least maintain the rate of growth we have achieved over the last 4-5 years, during which time we have grown from 18 to 43 branches and quadrupled our fee income. We believe the lettings market will continue to grow as a response to housing needs and socio-demographic trends, a shortage of good quality homes, increasing reliance on the PRS to support social housing need, the difficulty for first time buyers to enter the market and, finally, the attraction of residential property as an asset investment class. However, even without dramatic growth in the underlying market Leaders can continue to grow through its acquisitive strategy.”
Dominic Agace, Winkworth. “Currently the sales market is the driving force in our business, with the lettings market proving more difficult as lettings stock is being moved to the sales team to satisfy demand. It is our integrated and local approach that makes our company profitable in all markets. We don’t believe there is medium-term dramatic growth in sales, lettings, or management due to the ongoing economic headwinds. However, there are opportunities for local proprietors with the help of our brand to win market share over larger, less agile corporate agencies.”
Q Which is your preferred expansion route?
Paul Weller, Leaders. “Our appetite for acquisitions is varied. We are happy to buy the shares in corporate entities or to purchase assets and goodwill. Historically we have acquired businesses that have taken us into new towns, extending the geographical footprint of our network. Many acquisitions have been portfolios that we absorbed into our existing branch infrastructure. We have purchased single and multi-branch businesses.”
Bob Scarfe, Countrywide. “We’ve always tried to strike a balance between acquisition and organic growth; the two are not mutually exclusive. We operate 40 local brands, each with their own history and we pride ourselves on how we use our expertise with local market knowledge to grow great businesses in the heart of the communities that they operate. This market presents plenty of opportunities, we’re open to all of them; Sotheby’s is a prime example, although our plans to expand this brand in the UK will mostly centre on opening our own new branches.”
Q What are the usual reasons for a company selling to you?
Dominic Agace, Winkworth. “There are plenty of agencies out there that are looking to exit due to financial difficulties. We look at the circumstances of every agency individually; our model is simply to invest in good agents and good businesses. Certainly, we don’t believe that all agencies that may be in financial difficulty are bad agencies. We look for agents who want to grow their business through either expansion or growing local market share.”
Q What do you look for when considering a business proposition?
Paul Weller, Leaders. “We are concerned to understand a number of factors. Location is important but not critical; we can always re-site a business and often do. More important is the size of the local market and our ability to grow the acquisition to a worthwhile critical mass. Initial size isn’t important, provided the growth opportunities are present; we often enter a town with a relatively small acquisition, which we then add to by further acquisitions. The length of time the business has been established is a factor as this will indicate a more stable client base. The quality of the portfolio managed is critical as poor quality property would damage our reputation.”
Q What is the approximate cost of opening a new branch?
Dominic Agace, Winkworth. “This is dependent on local factors; rents and advertising costs which vary hugely from area to area. However, a starting point for a franchisee is a requirement to access working capital of at least £100,000.”
Q What is the single thing most likely to wreck a sale?
Q How long does a purchase take?
Dominic Agace, Winkworth. “This varies significantly; there can be a long ‘getting to know each other’ period. Through our model the ‘proprietor’ will still be involved once they have joined the Winkworth network, so we both have to be happy that we share the same values and aspirations.”
Q Do the principals usually stay with the company?
Dominic Agace, Winkworth. “Yes! These are the people we are investing in and who we believe are an integral part of making the agency successful in its local market.”
Q Are there usually redundancies?
Q What’s the biggest challenge in acquisitions or new branches?
Bob Scarfe, Countrywide. “The most exciting prospect is deciding on locations and prioritising our growth. But with the right branch staff and experienced agents in senior management, it’s not difficult at all – it makes life exciting and presents opportunities for our staff to progress.”
Paul Weller, Leaders. “The most challenging aspect is the integration of the business into the Leaders’ operation and the management of the transferring staff. However, our acquisition integration team are highly experienced in this task. It is normal for us to complete an acquisition on a Friday, and have loaded their database onto our own IT systems by opening for business the following Monday, having worked through the weekend.”
Q And the most exciting?
Dominic Agace, Winkworth. “Year two! When the hard work of year one feeds through to a steady stream of consistently profitable months. On a more immediate level, taking on high-value instructions, which they would not have been able to get on their own.”
Bob Scarfe, Countrywide. “Speaking on the Sotheby’s brand – working in partnership with one of the best known and respected brands in the UK.”
Q Where will you be in 5 years?
Paul Weller, Leaders. “Our business plan is to continue to grow Leaders at approximately the same rate for the next five years. However, as a result of our recent restructure we are also now able to consider larger acquisitions beyond our traditional geographical territory.”
Bob Scarfe, Countrywide. “We have ambitious plans to build on the significant market share growth we’ve enjoyed over the last two years... but you’ll have to wait and see how we utilise all our brands and services to do that.”