Shareholders in the UK’s largest estate agent must be feeling buyer’s remorse. Countrywide badly needs funds to pay down debt and continue a turnround plan started in 2018. It is looking to investors.
Desperate perhaps, but shareholders were unwilling to sell themselves short and accept a bailout from private equity group Alchemy. Peter Long, executive chairman and architect of that transaction departed on Tuesday. A revised deal is unlikely. Having injected some £200m in recent years, shareholders will resist another recapitalisation. A potential offer from rival Connells remains the best bet.
Countrywide had problems long before the pandemic. Mr Long was appointed in 2018 to correct management decisions that crashed sales and profits. Alchemy’s deal would have given the turnround specialist a controlling stake. Connells is offering a way out with a possible cash offer of 250p per Countrywide share. That is below the price at which shares were trading at the start of the year but it is the best this fixer upper can hope for.
Countrywide’s share price of 222p reflects doubt that a deal will go ahead. But prospects for Countrywide as a standalone business are risky. The priority is paying down net debts of £50m. At roughly twice last year’s ebitda that may not sound high. But add back in deferred payments for taxes to the UK government and the figure doubles. Housing transactions may have recovered strongly in October. But stamp duty relief and other government support measures will fade in 2021.
Connells has a leading market position and cash on hand. It can afford to take the risks needed to turn Countrywide — a business valued at more than £1bn just five years ago and just £75m now — into something fit for modern purpose. Incoming Countrywide chief executive Philip Bowcock will oversee the next step. Stints at Cineworld and William Hill, two other businesses whose traditional models are also being disrupted, should serve him well. He should start by getting the board behind a deal with Connells.
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