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EXCLUSIVE: OnTheMarket says proposed float does not mean abandoning core principles

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A number of questions put by agents – including some of the issues raised by posters on EYE – have now been answered by OnTheMarket.

We should clarify that the following Q & A has been put together by OTM itself.

Was it the plan all along for Agents’ Mutual to seek an IPO?

There has been a lot of speculation around this but the answer is categorically no!

Agents’ Mutual was created in 2013 by a very small group of agent firms with the key objective of creating a new agent-owned, agent-controlled portal to challenge the dominance of Rightmove and Zoopla.

We believe that the potential raising of new capital via an IPO, if successful, will enable management to accelerate the growth of the OnTheMarket.com portal – already the UK’s third biggest player.

OnTheMarket.com launched in January 2015 with the properties of 4,600 branches. In January 2017, after just two years of operating, more than 6,000 branches were listing on OnTheMarket.com and it achieved traffic of over 11m monthly visits.

OnTheMarket.com made very strong progress with relatively modest funds at its disposal but it is now clear that a change in strategy, together with much greater growth funding, is needed to allow it to reach its goal of substantial market coverage of UK estate and letting agents and high levels of brand awareness and traffic.

We have concluded that the funds required to grow substantially cannot be obtained from members using the existing corporate structure.

Had there been more comprehensive support from the UK’s 18,500 estate agent branches at the outset, Agents’ Mutual could have enjoyed a stronger position from which to challenge pricing and behaviour in the existing portal marketplace.

Isn’t this just another Rightmove?

Far from it! The proposed changes have the power to be transformational but do not mean an abandonment of the principles around which Agents’ Mutual was built.

The core proposition of Agents’ Mutual and its OnTheMarket.com portal has always been to provide a strong challenger and alternative business and brand to the Rightmove and Zoopla duopoly with fair fees for agents and an excellent search facility for consumers.

This is a core principle that still stands. Agent ownership and support of OnTheMarket.com remain essential to the portal’s future success albeit as shareholders rather than members.

The strategy of creating competition within the marketplace through price disruption is still our planned path of progression.

Based on the principle of sustainable fair pricing, the new listing agreements which Members are being asked to enter into to support the proposals and the new strategy, have a fixed tariff which guarantees no price increases for the first two years and a maximum annual price increase of 5% thereafter during the five-year listing period.

Crucially, it is proposed that – if successful at IPO – OnTheMarket plc will be majority owned by agents who are not being asked to invest further as part of the IPO.

What plans are in place for management’s remuneration?

The plans on how key staff will be remunerated, should the IPO be successful, have been presented on page 16 of the Member Scheme document. The management’s shares will be subject to the same lock-in period as shares belonging to existing member agents. Ten per cent of the aggregate can be sold from the first anniversary of the float.

A further 10% can be sold from the second anniversary. Eighty per cent cannot be sold until the fifth anniversary of the float.

How does the membership share allocation work?

All member firms not in breach of their existing listing agreements – irrespective of size – will receive a base allocation of 4,000 ordinary shares in OnTheMarket.

The balance of the new OnTheMarket shares, representing the largest part of the issue, will then be calculated according to the listing fees they have contributed since launch. Loan Noteholders will, if the relevant schemes are approved, exchange their existing Loan Notes for Loan Notes in OnTheMarket and these will then convert into shares in OnTheMarket on IPO at the IPO price.

There is no price to pay for these shares received on completion of the restructuring.

As announced, the board, following consultation with Zeus Capital, is seeking a valuation for OnTheMarket of between £200m and £250m but the valuation will ultimately be set by investors.

You say you believe you can raise £50m of investment for the portal. What will this money be spent on?

If successful at IPO, up to £30m of the funds raised is intended to be used to support a nationwide marketing campaign through TV, online and print media in the first full year of the campaign as well as to expand the capacity for key personnel, including within the technology department.

Why are you lifting the ‘One Other Portal’ Rule?

The market strategy for entering the market in 2015 was considered to be the right one and the Competition Appeal Tribunal has recently unanimously upheld the key terms in the current listing arrangements.

It has always been the case, however, that those arrangements would be kept under review and, with the benefit of substantial new funding, we believe that lifting the ‘One Other Portal’ rule now for members will allow OnTheMarket.com to make faster progress towards full scale and to deliver its core long-term purpose than may be possible with it in place.

And what about online-only agents?

For similar reasons, we believe the time is right to review our listing eligibility criteria with a view to broadening the appeal and coverage of the portal, to reflect major changes in the market landscape.

The policy has been about ensuring a full service is offered to customers. This will continue but will include agents who offer at least the option of a full service without necessarily providing this from a ‘bricks and mortar’ high street branch.

Since the launch of OnTheMarket.com, there has been considerable convergence between so-called ‘hybrid’ agents and so-called ‘traditional’ agents: the hybrid agents have undoubtedly increased their market share, albeit so far only accounting for around 6% of sales listings, and traditional agents have responded competitively in a variety of ways, including by the creation of their own online or hybrid services and the exploration of partnership arrangements with online/hybrid agents.

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