This has been a truly extraordinary week for mergers and acquisitions activity in the lettings sector. On Monday the private equity investor ICG spent £450m buying Lomond Group. Just 28 hours later they bought the largest remaining independently owned letting agency in London, Kinleigh Folkard and Hayward (KFH).
KFH is an extraordinary business. I undertook a lot of training and consultancy work for them in the 1990’s. After their experience of trading through the 1988 to 1992 recession in the residential sales market they were one of the first large companies to recognise the importance of the lettings market and over the next 30 years they built a formidable letting business.
What is less well known is that they also built a very sizeable block management business. Their objective was to protect themselves from the next downturn in the sales market and they did this by maximizing countercyclical and recurring fee income from their other divisions. They did an exceptionally successful job of achieving this.
KFH was never quite as profitable as some other London estate agency groups but their objective was to reinvest their profits in growing the business and this plan served them well in the long run. At a time when a pound of letting turnover is worth 6 or 7 times as much as a pound of sales turnover this strategy certainly maximized the value of their business.
Lomond Group will now no doubt, combine KFH with Chase Evans which they bought from me just three months ago. They will also try to buy as many other London letting agencies as possible in order to get the economies of scale necessary to justify the purchase price of KFH.
The fact that a new entrant to the market has spent well over half a billion pounds on acquisitions within 48 hours is a huge vote of confidence in the stability and longevity of the UK lettings market and I have no doubt that these purchases will have a very positive impact on the number and value of other transactions in the sector.
I have been saying for some time that the consolidation of the lettings industry will have been completed within 10 years and I now think it will be mostly completed within five years. Whether this is good for agents landlords and tenants or not is immaterial because this consolidation is now inevitable.
Business owners will therefore need to ensure that they plan their exit carefully in order to achieve the best price and sale terms for their business. Thirty two years’ experience tells me that the best way to achieve this is always to run a proper tender process in order to attract competing bids from several different buyers rather than accepting a direct offer from a single buyer
Adam Walker is a renowned business sales broker specialising in the letting agency sector
Comments are closed.