Times are tough in the UK market at the moment and it seems to me that the best value creating play would be a merger of rightmove and propertyfinder and therefore increase the gap between rightmove and the rest of the market.
This article follows up on our exploration of consolidation options in the UK market.
So lets explore the logic around why this move could make sense.
rightmove.co.uk is the clear market leader in the UK. According to ComScore it had 2.4m UV’s in September – 1.1m or 84% more than second place propertyfinder.com. However it is coming under pressure from a variety of sources including agents who are either ceasing to trade, other agents who are finding paying the monthly subscription challenging, and from the new age competitors who are offering free advertising models.
propertyfinder.com (as a group) is the second most visited site in the UK and along with its sister sites of hotproperty.co.uk and ukpropertyshop.co.uk, has solid traffic in the market. According to ComScore, in September the propertyfinder network (propertyfinder.com (1.3m), ukpropertyshop.co.uk (0.4m) and hotproperty.co.uk (0.3m)) had 1.7m UV’s.
From a rightmove perspective, the acquisition (it wont be a merger) of the propertyfinder network makes strategic sense.
- It could run the two in parallel and therefore claim #1 and #2 spots in the rankings and increase their coverage of the UK market – all for probably a lot less than spending it on marketing. Agents would have their listings on both sites and therefore gain a significant increase in their life blood – leads.
- It removes the threat of the propertyfinder network merging with The Digital Property Group (findaproperty.com and primelocation.com) and therefore creating a true threat to rightmove.
- The time is right on pricing. rightmove has money in the bank and the prices of these sites are not increasing, but decreasing. rightmove and the REA Group are both off significantly from their 12 month highs.
- If the deal was done for equity, rather than cash, and therefore the REA Group and News International ended up with equity in rightmove (probably a small stake), then News would be faced with a challenging question about who to truly back – rightmove.co.uk or globrix.com.
From a REA Group / News International perspective, the deal also makes sense and would get them out of a difficult situation.
- propertyfinder has lost money over the last couple of years and although it is making head way in the UK market, it does provide them with an out in what has become a highly competitive market.
- This would improve the overall profitability of the REA Group – never a bad thing.
- If they can get equity rather than cash for the deal, then give the depressed price for rightmove stock, they could end up with a sizable stake – maybe in the 5% – 10% range.
Of course there are a number of hurdles to make any deal like this work, but if it could be pulled off, then shareholders on both sides are likely to see their stocks increase in value.