A trend of consolidation is emerging within the UK estate agency sector. Some agencies are strategically pursuing mergers and acquisitions to seize opportunities in the buoyant residential lettings segment, while others are feeling the effects of market pressures driven by the volatile UK economy, potentially pushing them toward selling their businesses.The UK housing market is facing increasing pressure due to 14 consecutive interest rate hikes, resulting in higher mortgage costs. Consequently, the market is on track for its slowest growth in over a decade, accompanied by a sharp decline in house prices. As a result of sluggish home sales, the residential lettings market is experiencing significant expansion, with year-on-year rental growth reaching record levels.
Over recent years, Connells has established itself as the UK’s largest network of estate agencies, both through organic growth and through acquisitions, such as its 2021 takeover of major rival Countrywide. This model has helped the business build a network of 80 local estate agency brands in the UK and the company says that the current climate lends itself well to continuing this approach.
Speaking to the Financial Times recently, Chief Executive Richard Twigg said that Connells “remain acquisitive and seek to buy inherently good businesses”, adding that pressures on estate agents have resulted in a situation where many “smaller, less successful businesses may look to sell”.
Smaller companies are also using the prevailing market conditions as a prompt to grow through acquisitions, such as Derbyshire residential, sales and property letting firm Professional Properties, which recently acquired estate agency Amber Homes.
Professional Properties also demonstrates, however, that it’s not just acquisitions that are helping firms to capitalise on new opportunities. In November 2023, the company announced that it would merge with its estate agencies, recent acquisition Amber Homes and existing business James Cope Homes, to create a new group: cope&co.
Professional Properties was established 25 years ago by husband and wife Susan and Daren Cope. Since then, the pair have established the firm – alongside James Cope Homes – as a major force in the Derbyshire property market, but felt that a merger would enable them to go further and significantly strengthen their position across Derbyshire and East Staffordshire.
The merger, the first major rebrand in Professional Properties’ history, creates one of the biggest independent letting and estate agents in the region and primes the company for further growth in the current climate – with future plans including the launch of a new block management service at the beginning of next year.
Anyone with even a passing familiarity with London’s residential market will be familiar with Foxtons, which has 60 offices across London and the Home Counties. Since closing several London branches in 2018 amid a drop in house sales, the firm’s business has increasingly come to be defined by lettings – and acquisitions.
In 2020, the company inaugurated a lettings acquisition programme which focuses on growing non-cyclical and recurring revenue streams through the acquisition and integration of high-quality lettings businesses, mainly across London.
As of 2023, 70 per cent of the group’s revenue is derived from lettings, reflecting the non-cyclical, recurring nature of the rental market. Crucially, as the firm has said, focusing on growth in lettings is partly a de-risking strategy, moving its business away from the relatively volatile lettings market.
Clearly, given the current state of the housing market, this strategy appears to demonstrate significant foresight and the firm’s results appear to bear this out. Foxtons CEO Guy Gittins recently saying that, since inaugurating the lettings acquisition programme, the company’s portfolio has grown by more than 40 per cent and currently stands at more than 28,200 tenancies.
In its most recent deal, the company acquired estate agency Ludlow Thompson in a deal valued at £10 million. Ludlow Thompson was founded 30 years ago and operates from seven London branches, deriving more than 70 per cent of its total revenue from lettings, reflecting Foxtons’ strategy of targeting high-quality London-based lettings businesses.
The deal was Foxtons’ second of the year, following the March acquisition of lettings firm Atkinson McLeod, with the two takeovers representing an investment of £17.4 million and bringing in an additional 2,800 tenancies.
Guy Gittins commented: “Having established a leading position in its local markets and a reputation for delivering the best results for customers, it is clearly a business which we believe is a perfect fit for Foxtons.”
“The acquisition reflects continued progress against our acquisition strategy and our focus on growing recurring lettings revenues, and further supports the delivery of our £25m to £30m operating profit ambition in the medium term.”
As Foxtons continues to seek acquisitions in the London lettings market, it will not be short of potential targets, with the capital the most fragmented region in the whole of the UK. According to GetAgent’s figures, there are 7,155 estate agencies in London - around 29 per cent of the UK’s total.
One major firm that has already attracted backing from an outside investor is estate agency giant Dexters, which last year announced a partnership with Oakley Capital, which will provide financial backing to Dexters’ growth strategy.
Dexters’ growth plans include opening new offices, developing its digital presence and services and expanding its market share through the acquisition of competitor firms. This was demonstrated with its acquisition of multinational LiFE Residential earlier this year, providing Dexters with a further eight offices across London and Asia offices in Hong Kong and Singapore.
However, the company is seemingly on the verge of an even bigger acquisition. While it has declined to comment, Dexters is reportedly set to acquire major London estate agency Kinleigh Folkard Hayward (KFH).
The deal would significantly boost Dexters’ already-strong presence in the London market, adding KFH’s 60 branches - and more than 900 employees - to its existing 155 offices in the capital.
Bristol Property Centre (BPC) is an estate agency based in the Redland area of Bristol. Founded in 2011 by director Ashley Day, BPC is a relatively small firm, certainly in comparison to a group such as Foxtons, but has established itself in the city and is now seeking to grow through acquisitions.
The company recently secured backing from Mercia Asset Management’s SME Loans fund, enabling it to make its first acquisition with a deal for Temple Homes Property, an estate agency based in the nearby Bristol area of Montpelier.
Ashley Day commented: ‘’We are thrilled to have acquired Temple Homes which is an established business with the same core values and principles as our own. We are integrating all the staff into the Bristol Property Centre family and will continue to provide a top notch service to Bristol landlords and tenants.”
Announcing the deal, Day said that the acquisition brings BPC’s portfolio to more than 350 properties across Bristol and added that the firm is “actively seeking” further acquisition opportunities as it looks to build its profile within the city.
A completed deal, meanwhile, saw one of the UK’s oldest estate agents, Chestertons, taken over by European real estate Emeria in a deal worth around £100 million. The deal followed a protracted turnaround process at Chestertons, which focuses on sales and lettings of upmarket London homes, after it was acquired out of receivership by Mercantile Group in 2005.
The acquisition sees Emeria acquire Chestertons UK business (with the group’s significant international operations remaining under Mercantile’s ownership), which spans 30 branches – up from just nine when the business was rescued in 2005.
Perhaps more interestingly as far as M&A in the wider housing sector goes, however, is the fact that Emeria is owned by Swiss private equity firm Partners Group. As both opportunities and challenges continue to emerge in the UK housing sector, and as economic uncertainty persists in the UK more broadly, we may see a growing number of major international investors look to enter the sector through acquisitions of large companies that face an uphill struggle to stay competitive.
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