Deals



MartinCo Plc Acquires Legal & General's Property Franchise Business


Posted: 31st October 2014 08:47

MartinCo plc (AIM: MCO), one of the UK's largest property franchise businesses, today announces that it has acquired the entire issued share capital of Xperience Franchising Limited and Whitegates Estates Agency Limited (together "Xperience"), comprising the entire property franchise business of Legal & General (the "Acquisition") for a consideration of £5.0m in cash plus an amount representing the net assets of Xperience at completion, expected to be approximately £1.0 million in cash. The business is being acquired debt-free and with no inter-company loans.
 
Xperience is a pure franchised lettings and estate agency group with 89 offices and 75 franchisees, comprising four highly regarded High Street brands, CJ Hole, Ellis and Co, Parkers and Whitegates with its financial services offered by Legal & General.
 
The acquisition is expected to be immediately earnings enhancing for MartinCo.
  
Background to the Acquisition
 
At the time of MartinCo's IPO in December 2013, the Directors had identified an opportunity to pursue a "buy and build" strategy by acquiring lettings portfolios for its franchisees to manage.
 
At the time, the Group had recently added an estate agency service to its primary lettings business and intended to grow this revenue stream as well as revenues deriving from financial services.
 
Xperience
 
Whitegates Estate Agency Ltd,  established in 1978, owns the master franchise for Whitegates, trading at 36 offices through 32 franchisees in Yorkshire, Lancashire, Merseyside, North Wales, East Midlands and Warwickshire. Xperience Franchising Limited owns the master licence for Ellis & Co, established in 1850. All 21 Ellis & Co offices, apart from Tonbridge in Kent, are within the M25 orbital, operated by 20 franchisees. Xperience Franchising Ltd also owns the master franchise for CJ Hole, established in 1865, which operates 17 offices through 9 franchisees in Avon & Somerset and Gloucestershire, as well as owning the master franchise for Parkers, established in 1948, which operates 15 offices through 14 franchisees in Berkshire, Oxfordshire and North Hampshire. Xperience generated revenue of £1.8m and PBT of £0.6m (of which £0.2m was an exceptional item) in the 12 months ended 31 December 2013. Franchise management fees from franchisees estate agency activity represented 48.7% of total franchisor revenue in the six months ended 30 June 2014.
 
Further details of the Acquisition
 
MartinCo has acquired the entire issued share capital of Xperience Franchising Limited and Whitegates Estates Agency Limited, together comprising the entire property franchise business of Legal & General for a consideration of £5.0m in cash plus an amount representing the net assets of Xperience at completion, expected to be approximately £1.0 million in cash. The business is being acquired debt-free and with no inter-company loans.
 
The cash is partly utilised from funds raised at the time of the IPO, and partly bank borrowing.
 
As part of the transaction, MartinCo and Legal & General have entered into a 10 year financial services agreement under which Legal & General appoints a panel of mortgage brokers to provide the Group's franchisees with access to whole of market mortgage products, life assurance and general insurance products. Legal & General has also agreed to work with the Group on a financial services strategy for the whole of MartinCo's franchise network.
 
Effects of the Acquisition
 
The Acquisition adds 89 offices to the Group, increasing total UK offices to 283 and increasing the number of tenanted managed properties to over 43,000 . It is estimated that the Acquisition will increase Group revenue by c. £0.3m in the final two months trading of 2014.
 
Xperience significantly increases the Group's footprint of offices across the UK, adds a substantial portfolio of tenanted, managed properties and provides the Group with a multi-brand franchise to increase its overall UK market share for letting and estate agency services.
 
In addition, the Acquisition provides further economies of scale and opportunities for operational efficiencies as well as developing the Group's estate agency business.
 
Xperience's franchise management team, comprising seven employees, is now part of the Group and Xperience's Managing Director Michael Stoop has accepted the position of Group Managing Director, working across all of the Group's brands.
 
The Acquisition will significantly increase the number of the Group's offices within the M25 orbital, adding 20 Ellis and Co offices to the 26 existing MartinCo offices. The Directors will be assessing the case for adopting a single brand in this strategically important location.
 
The regional brands of CJ Hole, Parkers and Whitegates extend the Group's UK footprint for MartinCo, adding 44 franchise areas where the Group is not currently trading and increasing the Group's national market share, particularly in regions around Bristol, the M4 corridor, Yorkshire, Lancashire & Merseyside and in London
 
Ian Wilson, Chief Executive of MartinCo plc, said:
 
"This acquisition of the entire property franchise business of Legal & General is a significant step forward in the Group's development and was made possible by our IPO and fundraising in 2013. This acquisition secures a very substantial portfolio of tenanted, managed properties and balances our mix of lettings and estate agency revenue. It significantly extends our agency network in London and brings with it both an experienced franchise management team and a powerful partner in Legal & General to help the Directors exploit opportunities for financial services across our enlarged office network. I'm delighted to welcome Michael Stoop, Xperience's Managing Director, who has a lifetime of estate agency and franchising experience, as our new Group Managing Director".
 
"The Group will own five franchise master licences and each of its five brands has the potential for further development. The Group's first brand, Martin & Co is a truly national brand predominately focused on lettings activity, while the strength of the four acquired brands lies in their regional focus and balanced mix of lettings and estate agency income streams."

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