How Countrywide’s Acquisition by Connells Can Be a Gamechanger

Summary

• Estate giant Countrywide’s shareholders have approved its merger with Connells.
• Countrywide had agreed to an increased takeover bid from Connells at £130 million.
• The acquisition of Countrywide by Connells will be complete in Q1 2021.

Estate agency Countrywide’s (LON:CWD) shareholders have approved its takeover by property services company Connells, bringing together the two biggest brands in the property market. The acquisition was finalised in 2020-end after Countrywide agreed to an increased takeover bid from Connells at £130 million. The deal is expected to be functional by the first quarter of 2021.

According to the terms, every Countrywide shareholder would be entitled to receive 395 pence in cash for each share held. The offer was finalised after both the boards agreed on the cash payout.

The offer price was increased later from the initial offering of 250 pence each share at £82 million. It was then increased to an offer of 325 pence per share.

Gascoigne-Pees, Bairstow Eves and King & Chasemore are some of the Countrywide’s well-known brands. Connells has 25 brands under its wings, which include Allen & Harris, Bagshaws Residential, Fox & Sons, and Barnard Marcus in London. The takeover will bring together all these high-street brands. In total, Countrywide has 651 branches, and Connells Group has 581 branches.

As part of the deal, loans from Countrywide's lenders would be settled in full. Connells would continue to invest in Countrywide’s technology support, the network of branches, and employees and would stabilise its business, the company said. 

Countrywide’s takeover would help the company in paying off its debts that were around £91.9 million. After making losses for years, the company was forced to shut down some of its branches. In 2018, Countrywide asked £140 million in emergency funds from investors to save the company from collapsing under its debts, following which its shares had plummeted more than 60 per cent.

Previous movers

Connells had previously made an initial offer of 250 pence for every share, but the Countrywide board unanimously rejected the offer.

In February 2020, the owners of Your Move, LSL Property Services, was in talks with Countrywide for a £470-million merger. However, LSL Property declared in March that the discussions on a possible merger did not find fruition and that it would not make an offer to Countrywide.

In October, private equity firm Alchemy, which was a shareholder in Countrywide, wanted to buy a controlling stake in the company by proposing to put in cash worth £90 million into the company. The proposal was then being backed by Countrywide’s former executive chairman Peter Long. 

In December again, Countrywide got another revised offer from Alchemy for an equity raising that would be completely underwritten by the private equity firm. The Countrywide board then announced that its deliberations were over with Alchemy and it had decided to not pursue it any further.

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Debts and losses

Countrywide went for an initial public offering (IPO) in 2013 where it was valued at £750 million. The company offered its shares at 350 pence a share. Its IPO underscored the buoyancy in the UK property market then.

But Countrywide could not hold on to the buzz of a successful launch for long. It went on to acquire a string of high street brands, which increased its debt burden when most of its competitors were investing to build infrastructure for online services.

Its revenues contracted 28 per cent. Revenue from operations fell to £173.8 million during the first half of FY20 ended on 30 June 2020, from £241.6 million in the first half of FY19. The company’s loss from operations stood at £40.1 million in the first half of FY20.

Countrywide’s acting non-executive chairman David Watson had said after the acquisition deal that the business has been strained by too much debt and after extensive discussions with shareholders, the company believed that a sustainable capital structure had to be put in place.

The property market of the UK has been successful in safeguarding itself from the economic fallout of the Covid-19 pandemic and has remained largely buoyant. In such a conducive environment, Countrywide’s merger with Connells could help in turning around the fate of the debt-laden real estate giant.