Estate agents Countrywide and LSL plot £500m merger

Sky News can exclusively reveal that Countrywide and LSL Property Services, which owns brands such as Your Move and Marsh & Parsons, are discussing an all-share deal.

The discussions were said this weekend to be “serious” although it was unclear how close the two sides are to announcing a transaction.

Countrywide and LSL are likely to be forced by the Takeover Panel, which polices listed company merger activity, to confirm the talks on Monday morning.

If completed, a combination would bring together some of the UK’s prominent property agency brands, with Bairstow Eves, Hamptons International and Gascoigne-Pees among Countrywide’s portfolio.

It would create the UK’s biggest estate agency group.

A merger would inevitably raise the prospect of substantial job cuts from the combined workforce of about 14,000 people.

Collectively, the two companies operate more than 1000 outlets across Britain, and are likely to point to the opportunity to rationalise that estate if they merge.

One analyst said that there was scope for “significant cost synergies” from a merger of Countrywide and LSL.

Other publicly quoted rivals include Foxtons, the London-focused chain.

Countrywide is by far the larger of the two companies, with close to 10,000 employees, but would be the junior partner in any merger by virtue of its much smaller market capitalisation.

Its shares closed on Friday at 340.2p, giving it a market value of just over £110m.

The company, which has a substantial debt pile, has seen its stock fall by 38% over the last 12 months and by a far bigger percentage over a longer-term period.

Under executive chairman Peter Long, it was forced into an emergency rights issue to raise £140m in 2018, but the cash-call has done little to indicate that it has solved its long-standing problems.

Late last year, Countrywide announced the £38m sale of its commercial property arm, Lambert Smith Hampton, to a Monaco-based Danish property entrepreneur.

However, the deal has yet to be completed after Countrywide warned this month that the buyer had yet to produce the cash.

That uncertainty is said to have accelerated the search for a merger partner – a far cry from 2007, when Countrywide was acquired by the US private equity firm Apollo Management in a deal worth £1bn.

LSL has already been through a significant cost-reduction programme, with its workforce having come down from 5500 to 4200 in the last couple of years.

Its shares have performed markedly better than those of Countrywide, rising by about 38% since this time in 2019.

Last month, it told the stock market that underlying operating profit for last year would be “slightly ahead” of previous expectations.

LSL now has a market value of £355m.

Despite its superior performance it, too, has not been immune to the headwinds confronting the estate agency sector.

A softening residential property market in the period since the 2016 EU referendum has posed problems for traditional agents with bloated cost bases.

The rise of competition from online-only agents such as easyProperty, HouseSimple, Purplebricks and Yopa has also been a factor in depressing industry profit margins.

Some of the online agents have also struggled, however, with emoov collapsing in 2018.

One point of interest for investors will be the proposed management line-up resulting from a merger of Countrywide and LSL.

Mr Long relinquished the chairmanship of Royal Mail Group in order to focus on his role at the estate agent, and the City will be surprised if he does not play a role in a combined group.

News of the merger talks comes just a fortnight before the first Budget delivered by the new chancellor, Rishi Sunak, with speculation about possible changes to the stamp duty regime.

Countrywide and LSL both declined to comment on Sunday.