REA Group Considers Closing Propertyfinder

In an announcement to the Australian stock market today, the REA Group said that it was commencing a review of their UK operations. The announcement also flagged a potential closure of all or part of the Propertyfinder business as well as the potential write down of its UAE and Hong Kong assets. They said that the likely net impact on their 2009 net profit is anticipated to be in the range of $26m to $28m.

This announcement comes after the recent closure of the UK print operations and rumours circulating that the REA Group had unsuccessfully tried to sell the Propertyfinder business to DMGT and Rightmove.

So what is the likely outcome?

The announcement and the timing of the announcement are not surprising and an 8% increase in the REA Group share price today indicated that the market was anticipating some form of announcement.

Earlier this year we wrote an article about the REA Group appears to be focusing more on its core Australian business. To do this the Group is unlikely to continue to invest in the growth of its overseas operations. Therefore, as the 2009 financial year rapidly comes to an end it makes sense to write off any non performing assets in this financial year.

Given the historical loss making position of the UK operations and the dramatic downturn in the UK market, it is not surprising that UK operations have been under review.

For sometime rumours have been circulating that the REA Group had unsuccessfully tried to sell Propertyfinder to DMGT (the owners of Findaproperty and PrimeLocation) and Rightmove. While we have written on the topic that it could strategically make sense for Rightmove to buy Propertyfinder, it appears that they have decided not to pursue this option.

Assuming the rumours are true, it is unknown if the business has been shopped around to a broader audience however, it would make sense to canvas a wide audience as the business has a good market position and has the potential to be run at breakeven or better.

So what is the likely outcome?

As the REA Group works towards the June 30 deadline for the 2009 financial year, it will have to make a quick decision of what to do with the Propertyfinder business. It can sell it, dramatically slash costs and keep it running, or close it.

It appears that selling Propertyfinder is the best outcome however this will be challenging as this process will take a while. I would have thought there would be a number of potential buyers out there and if the alternative is closing it, a competitive price could be taken.

The business could dramatically slash costs however this will also take time as these costs will primarily have to come from reducing the number of employees. In addition, there are costs attached with reducing the number of employees and this would impact the 2009 / 10 numbers. If they did continue to run the business, News International and the REA Group would still have to fund Propertyfinder in 2010, albeit to a significantly lesser extent. This may not be palatable to News International or the REA Group.

Finally, they could close the business. However, it is hard to believe that the business has no value to anyone. It is well positioned (2nd or 3rd) in the UK market, has a strong brand, is used by thousands of agents and has revenue streams that many portals in the UK would be jealous of. It is possible that DMGT, Rightmove or one of the other media players in Europe can now pick up the business in a fire sale.

While a sale of the business would be the best outcome, this announcement by the REA Group appears to be laying the foundations for a potential closure of the business. The next four weeks will be very interesting.

1. Propertyfinder MBO Fails But …

   The much talked about management buyout of propertfinder.com in the UK has failed however a new mystery buyer has emerged. In a late announcement on the ASX, the REA Group & News International have entered into a non-binding heads of agreement for the potential sale of their UK online business. Internal sources say there were three “very detailed and strong bids” however the while the existing management put in a “very impressive bid”, they were not the preferred option. A period of exclusivity has been entered with the preferred bidder so that they can undertake due diligence and the identity of the preferred bidder might be revealed as soon as the end of next week. Given the comment in the ASX release that “if this transaction successfully proceeds to completion, it is unlikely to have any impact on the guidance (already) provided”, the offer being considered is likely to be small. The REA Group and News International have also kept the door open to close the business or just sell the assets to the preferred bidder as they continue the consultation process with staff – a prelude to closure. So who is the mystery bidder?...

2. Could a Management Buy Out Save Propertyfinder?

   As reported last week, the REA Group and News International are considering closing Propertyfinder, its UK operations. Since then Nick Leeming, the Founder and Major Accounts Director of Propertyfinder, has been reported as saying that the management team, lead by CEO Gillian Kent, are mounting a rear guard action to save the business by putting together a MBO (Management Buy Out) plan. The clock is now ticking for the Propertyfinder management team as the REA Group stated that the review of the UK operations would last only 40 days. Assuming a plan can be assembled in time, what is the plan likely to look like and could a revamped Propertyfinder be profitable?...

3. Is Propertyfinder Worth Saving?

   It’s been a hectic week for the team at Propertyfinder with the REA Group and News International announcing a full review and the possible closure of the business, and the management team at Propertyfinder putting together a MBO. A cursory review of the REA Group accounts reveals that there is significant red-ink next to the Propertyfinder business. However, deeper analysis reveals that the Propertyfinder business has strong traffic, solid revenues, a strong reputation and a good management team in place. Therefore the question that arises is “Is Propertyfinder actually worth saving?” In this, our third article in the Propertyfinder series, we look at Propertyfinder and its performance in the UK market....

4. REA Group Sells Stake in propertyfinder.ae

   The REA Group has exited the Dubai market by selling its 51% stake in propertyfinder.ae to its joint venture partner, the Swiss Media Group. The REA Group purchased 51% of Propertyfinder.ae in October 2007 with the objective of driving strong growth on online real estate advertising in the Gulf Region. The sales continues the retreat of the REA Group to its core Australian business....

5. Zoopla Confirmed as Potential Propertyfinder Buyer

   Last week it was revealed that the Propertyfinder's management buy out attempt had failed and that the REA Group and News International had entered into a heads of agreement with a mystery party. This mystery party has now been confirmed as being Zoopla. Zoopla is a relatively new entrant to the UK online real estate market having initially launched a site around home prices and more recently moving into advertising homes for sale in the UK using the pay per lead model. Earlier this year Zoopla closed out a £3.75m capital raising. Check out our coverage of Zoopla over the last year. On reflection, this deal makes sense by providing Zoopla with a boost into being a serious competitor in the market and it gives propertyfinder.com and its team a new lease on life....