Purplebricks Group (LON:PURP) £125m Strategic Investment, Trading & Board Update

 

Purplebricks Group plc

(“Purplebricks” or “the Company”)

£125 million Strategic Investment by Axel Springer

Current trading update

And

Non-executive board changes

Highlights

·        Strategic investment from Axel Springer of approximately £125 million including a £100 million subscription for new shares to:

–           Accelerate rollout in the US

–           Support entry into new markets

–           Fund technological innovation and expand Purplebricks’ service offering

·        Axel Springer is Europe’s leading digital publisher, listed on the Frankfurt Stock Exchange with a market capitalisation in excess of €7 billion, owning a portfolio of media, marketing and advertising channels

·        Axel Springer operates leading European real estate portals such as SeLoger, Immowelt and Immoweb

·        Axel Springer will own approximately 11.5 per cent. of Purplebricks’ share capital following the transaction, subject to relevant approvals

·        Group revenues for the full year expected to show around 100 per cent. year-on-year growth. Some UK underlying softness and adverse weather in late February and early March has resulted in group revenues for the year being expected to be approximately 5 per cent. below company consensus[1]

·        Appointment of four new Non-Executive Directors to Purplebricks’ Board on or before 25 April 2018; Nick Discombe and Will Whitehorn to retire on or before 30 June 2018

Overview

Purplebricks Group plc (AIM: PURP; “Purplebricks” or the “Company”), the hybrid estate agent, is pleased to announce that it has entered into an agreement with Axel Springer SE (through its subsidiary, Fünfundachtzigste “Media” Vermögensverwaltungsgesellschaft mbH) (“Axel Springer”), Europe’s leading digital publisher, under which Axel Springer has agreed to make a £125 million strategic investment in Purplebricks by subscribing for new ordinary shares of £0.01 each (“Ordinary Shares”) in the Company (the “Subscription”) as well as acquiring existing Ordinary Shares from certain PDMRs of the Company (the “Share Purchase”) at a price of 360p per Ordinary Share (together the “Strategic Investment”).  Following the Strategic Investment, Axel Springer will own approximately 11.5 per cent. of Purplebricks’ issued share capital, as enlarged by the Subscription, and Purplebricks will appoint Dr Andreas Wiele, an executive board member of Axel Springer and President Classifieds Media, as a non-executive director on Purplebricks’ board of directors (the “Board”).

The Board believes that this is a major strategic advance for the Company and that Axel Springer’s expertise and funding should enable Purplebricks to achieve its strategic goals and global ambition more quickly and effectively.

The Strategic Investment is conditional on the passing of certain resolutions to effect the Subscription at a general meeting of the Company to be held on or around 18 April 2018, notice of which will shortly be sent to shareholders (the “General Meeting”).

Michael Bruce, Chief Executive of Purplebricks, said:

“It is fitting that on the cusp of our four year anniversary we continue to push boundaries and challenge conventional thinking. The strategic partnership with Axel Springer is ground breaking and will propel Purplebricks further towards our strategic goals and global ambition. We now have the platform, funding and, through Axel Springer’s experience, as well as the appointment of four new leading non-executive directors, the expertise to achieve our vision.

Purplebricks continues to be a pioneer and a consumer champion, providing customers with a better and more cost effective way to buy, sell and let property through the combination of technology and first class people. Our feedback, which has just broken through 40,000 UK reviews on Trustpilot, with an average score of 9.6 out of 10 is further evidence that consumers across countries are embracing change and recognise the benefits we deliver. The funds raised will be used to put even more clear blue water between us and our competitors in terms of customer service and bring the Purplebricks offering to new territories. We are confident in the future, welcome the endorsement of Axel Springer and look forward to continuing to deliver value for all of our shareholders.”

Dr Andreas Wiele, President Classifieds Media Axel Springer SE, said:

“Under the leadership of its founder Michael Bruce, Purplebricks has created a highly innovative digital real estate platform and has become the clear market leader in the UK in a short space of time. For Axel Springer, this minority stake offers the opportunity to participate in an innovative, fast growing business model in new markets.”

Background on Axel Springer

Axel Springer is an established international media company, listed on the Frankfurt Stock Exchange with a market capitalisation in excess of €7 billion.  Operating primarily in Europe with market leading positions in Germany and France, Axel Springer like Purplebricks has global ambition, targeting growth markets including the US.

Axel Springer’s Classifieds Media division has established one of the world’s largest portfolios of leading online classifieds portals over the last few years with annual revenues and adjusted EBITDA for the year ended 31 December 2017 of €1,007.7 million and €413.2 million respectively (this represented approximately 64 per cent. of Axel Springer’s group adjusted EBITDA, per the 2017 Annual Report and Accounts).  This portfolio of digital classifieds is the most important pillar in the Axel Springer group, with activities divided into three sub-segments: Real Estate, Jobs and General/Other.  Its main Real Estate brands are SeLoger, the leading property portal in France, and the German property portals Immowelt and Immonet.

Axel Springer sees strong long term growth drivers in digital classifieds from, among other factors, the ongoing transition of classified ads to online, the acquisition of new customers and the increasing monetisation of the offer. In Purplebricks, Axel Springer has identified a business with the management team, technology and customer proposition, underpinned by the strength of the brand, that can continue to transform the way consumers buy, sell and let property.

 

The Subscription and Share Purchase

Axel Springer has agreed conditionally to subscribe for 27,777,777 new Ordinary Shares at a price of 360 pence per Ordinary Share (the “New Ordinary Shares”). The price paid per share represents a premium of 8.6 per cent. to the last 10 trading days volume weighted average price (VWAP) immediately prior to the date of this announcement. The New Ordinary Shares represent approximately 10.1 per cent. of the issued share capital of the Company prior to the issue of the New Ordinary Shares, and approximately 9.2 per cent. after the issue of the New Ordinary Shares.  The Subscription is conditional on the passing of certain resolutions at the General Meeting.

In order to secure a shareholding in Purplebricks of sufficient size, Axel Springer has also agreed the purchase of an aggregate 6,944,444 Ordinary Shares (the “Sale Shares”) at 360 pence per Sale Share, representing an aggregate value of approximately £25 million, from Michael Bruce (Group Chief Executive Officer), William Whitehorn (Non-executive Director) and Kenny Bruce (Global Sales Director).  The Share Purchase is conditional on the Subscription becoming unconditional. 

In connection with the Share Purchase, each of Michael Bruce and Kenny Bruce have agreed with Zeus Capital Limited, the Company’s nominated adviser, that they will not dispose of Ordinary Shares held by them for a period of 12 months following completion of the Share Sale.

 

Use of proceeds

Purplebricks intends that the net proceeds from the Subscription of approximately £100 million will augment the Company’s existing cash resources of £51.7 million (as at 28 February 2018) and allow it to accelerate its strategic plans as follows:

–      An accelerated rollout in the US

–      Entry into new geographic markets

–      Fund technological innovation and expansion of Purplebricks’ service offering

The Company intends to allocate approximately £50 million of the Subscription proceeds to the US rollout with the balance to be allocated to the other initiatives as appropriate.

1)         An accelerated rollout in the US

The US residential real estate market is a $70 billion per annum commission income market, with the top seven states contributing approximately 30 per cent. of the overall market in terms of instruction volume.  Like the UK four years ago, the sector is prime for disruption with incumbents charging as much as seven per cent. commission. The Company’s consumer research and customer feedback highlights high levels of dissatisfaction with the current service offering and an increasing reluctance to pay away such a high proportion of the value of the property.

 

Purplebricks’ customer proposition and business model is uniquely positioned to capitalise on current market dynamics and provide consumers with an improved full service alternative that will reduce the cost of moving and provide a better experience.

 

The cumulative knowledge, gained from Purplebricks’ US leadership team’s extensive experience in the real estate industry and the Company’s insights since launching in California in September 2017, gives the Board confidence to pursue an accelerated rollout across a number of further states.

 

To date the Company has expanded into four Designated Marketing Areas (“DMAs”) in California and, with momentum continuing to build, is set to launch in the New York DMA on 3 April 2018. 

 

In the New York DMA, which includes more than 20 million people in select counties across New York, New Jersey and Connecticut, real estate commissions reach as high as seven percent and an average home sells for approximately $560,000, making this market particularly well suited for Purplebricks’ value proposition. Transaction volumes for homes within this price range are double the national average, reflecting the area’s strong economy. Furthermore, the area’s high population density and transaction volume should allow for accelerated brand awareness, which will be fuelled by Purplebricks’ “always-on” TV-led marketing and multi-channel advertising campaign.  Expanding into the East Coast via the New York DMA advances Purplebricks’ strategic plan to penetrate key U.S. housing markets.

 

The Company’s US service score on Trustpilot from customers is 9.5 and rated excellent and its brand awareness and brand consideration are considerably ahead of where the UK was at the same time in its development.

 

The additional funds will be used to bring forward planned investment to support an accelerated rollout across states, covering the areas of:

•    Infrastructure

•    Recruitment and training

•    Technology

•    Management depth and breadth

•    Advertising and marketing

•    Operating costs

 

2)         Entering strategic markets in need of disruption

Purplebricks has disrupted the real estate markets in the UK and Australia and has started its journey in the US. There is a window of opportunity to scale into other markets, applying all of the learnings from its rollout to date. The Board believes these sizeable markets are prime and available for disruption.

Use of funds:

•    Infrastructure for rapid growth

•    Localise technology platform for each new market

•    Recruitment and training

•    Increased management depth and breadth

•    Advertising and marketing

 

3)         Technological innovation and expansion of Purplebricks’ service offering

Purplebricks aims to continue to invest in innovation to cement its strong position in traditional and hybrid/online markets. In particular it will seek to develop better, more rapid methods of communication, as well as best in class search functionality, additional advertising and marketing options for sellers and information for customers.

As part of a strategy to build on its current service offering, Purplebricks aims to create longer lifetime relationships with its customers so they stay engaged with the brand for the period between moving into their new home and when they come to sell the property and it will look to engage with more of the buyers who visit the site (over 1 million searches a month in the UK). Alongside this, the Board are exploring ancillary services and additional revenue opportunities which are yet to fully embrace technology as it believes Purplebricks is well placed to provide a superior customer experience, reduce friction in the transaction process and speed up transaction times in these markets.

Use of funds:

•    Add additional supporting technology hires

•    Develop the technology platforms

Rationale for the Strategic Investment

The Board believes that the expertise and funding of Axel Springer provided by the Strategic Investment should enable Purplebricks to achieve its strategic goals and global ambition quicker and more effectively. 

Axel Springer’s strengths in digital technology and the experience it can share from having deployed significant resources into its own IT development should also benefit Purplebricks as it seeks to continue to innovate and offer its customers enhanced functionality and engagement.

Finally, the support of a significant strategic partner such as Axel Springer is expected to further raise the global profile of Purplebricks and help promote its story and development for the benefit of all stakeholders. 

 

Current trading update

Market conditions in the UK during the period have been subdued due to some underlying macro issues and exacerbated by the recent periods of poor weather.   These have resulted in a slower than expected start to the key spring market with external market statistics showing that for the industry as a whole instructions for the first 3 weeks of March 2018 are down 17 per cent. compared to the same period last year.  While Purplebricks has experienced strong growth in its UK division to date and it continues to build market share in both the total estate agency market and hybrid estate agency sector in the UK, it has experienced lower than expected levels of new instructions for the Company during the period.

A further contributing factor was that approximately 10 per cent. of the Company’s Local Property Experts (“LPEs”) were taken out of the field entirely in late February and early March to take part in a training initiative over a ten day period, as part of the Company’s continued LPE productivity and conversion drive. 

As a consequence of these factors in the UK market, it is expected that for the year ended 30 April 2018 the Company will report group revenues around 5 per cent behind Company compiled consensus of £98 million with the consequential impact on the operating profit line reflecting the operational gearing in the Company’s business model. Both Australia and the US are on track to at least meet the Board’s full year revenue expectations.  The Company will end its financial year with a year on year increase in revenue of around 100 per cent..

However, the Company is now beginning to see the expected spring market activity building even though the backdrop of relative market softness persists. During the last 10 days Purplebricks has achieved record levels of instructions which translate to a monthly run rate of nearly 7,000 instructions.  Its market share of the online market at the end of February was 76.1 per cent.  The LPEs are now back in the field and the Board expects that the additional training will contribute to uplifts in performance in the future as a result. 

The Company intends to announce its final results for the year ending 30 April 2018 on 5 July 2018 and will provide more detailed guidance at that point. 

 

Proposed Board changes

In addition to Dr Andreas Wiele, and following a thorough recruitment process, Purplebricks is pleased to announce the appointment of a number of new and highly experienced independent non-executive directors to the Board of Purplebricks, who will each join the Board on or before 25 April 2018.  In tandem, Nick Discombe and Will Whitehorn, who have both served as non-executive directors of the Company since before its flotation, will retire from the Board on or before 30 June 2018. 

The new non-executive directors of the Company are:

Adrian Blair – Independent non-executive director:

Adrian is currently Global Chief Operating Officer at Just Eat plc, where he is responsible for all commercial operations in the UK and 12 international markets.  As the longest-serving member of the Executive Team he has been instrumental over 7 years in building Just Eat into one of the most successful technology companies in Europe.  He was part of the team that led Just Eat through its listing on the London Stock Exchange in 2014, since when the company has created c. £1bn of shareholder value per year, culminating in promotion to the FTSE 100 in December 2017.  

Adrian joined Just Eat from Spotify, where as Director of European Business Development his team forged pioneering partnerships between the music streaming and mobile device industries.  Prior to this he spent six years at Google Inc. in a number of senior commercial roles across California and London including Head of eCommerce Partnerships, where his team helped thousands of businesses improve their ROI from AdWords.  Before that, Adrian was Head of Business Development at Ask Jeeves Inc., where he developed a network of over 10,000 affiliate websites, helping Ask become a household name in the UK prior to the $1.85bn sale to IAC.

Adrian is a member of Founder’s Pledge, transferring a portion of his share proceeds to Give Directly (www.givedirectly.org), and a Patron of the Wigmore Hall.  He holds a Master’s in Business Administration from Harvard Business School and a BA from the University of Oxford.

 

Adrian will chair the Nomination Committee. 

Simon Downing – Independent non-executive director:

Simon Downing is the founder and Executive Chairman of Civica Group Limited, a leading international provider of specialist software and digital solutions.  Simon led the business through its flotation on AIM in 2004, and its subsequent growth and international expansion, completing 25 acquisitions as part of the group expansion.  In July 2017, Civica was sold to Partners Group for £1.06 billion and had grown to over 4,000 employees and had operations in 9 countries.

Simon is currently the Chairman of Edenhouse Solutions, a specialist SAP support and consultancy business, and is a non-executive director at AdvisorPlus Business Solutions and Datum Datacentres.

In addition to his role at Civica and other board appointments, Simon is a Senior Adviser to OMERS Private Equity, which has in excess of CAD $11 billion of private equity assets under management. He is also a past winner of the EY UK Technology and IT Services Entrepreneur of the Year award.

 

Simon will chair the Remuneration Committee.

Mike Wroe – Senior independent non-executive director:

Mike Wroe is the former Group Chief Financial Officer of Just Eat plc and was part of the team that led the transformation of Just Eat from a 40-person, venture-backed start-up, through its IPO and transition into becoming a highly successful public business.  Mike has over 20 years’ experience across a range of ecommerce and technology businesses and with a track record of delivering results in both high growth and large public companies.

After qualifying as a Chartered Accountant with Deloitte & Touche, Mike held a number of senior executive positions at Innovision Research and Technology Plc, Integral (a division of Staveley Industries plc) and Servisair Air France Ltd.

Mike will be the Company’s senior independent non-executive director and will chair the Audit Committee.

 

Dr Andreas Wiele – non-executive director:

Dr Andreas Wiele studied law at Dijon, Salzburg and Munich Universities. 

He worked first of all as an editor at “Hamburger Morgenpost”, before he became assistant to the chairman of the Gruner + Jahr management board in 1988. In 1990 he took over responsibility for the “Capital” project at the Prisma Presse publishing company in Paris, where he became publishing manager of “Capital” and “Geo” in 1991. 

In 1994, he moved to New York to join Gruner + Jahr USA Publishing, initially as senior vice-president and general manager of “Family Circle” and “McCall’s” and from 1997 onwards as executive vice-president and chief operating officer for the publishing company as a whole.

In 2000, Dr Andreas Wiele was appointed member of the Executive Board of Axel Springer SE as President of the Magazines and International Affairs Division. In 2008, he was appointed President BILD Group and Magazines, in 2014 President Classifieds and Marketing Media and in 2018 President Classifieds Media and CEO Axel Springer Digital and Axel Springer Digital Ventures.

Andreas joins the Board of Purplebricks conditional on the completion of the Strategic Investment, which provides a board representation right for Axel Springer (as further described later in this announcement).

Appended to this announcement are further details of each of the Company’s new non-executive directors.

Paul Pindar, Chairman of Purplebricks, commented: “Nick and Will have provided extraordinary service and commitment to the Board over many years. They have been part of the journey of transformation of Purplebricks, which has created significant value for all shareholders. On behalf of the entire Board, I would like to express my appreciation for their substantial contribution and support to the Company.

We welcome Adrian, Simon, Mike and Andreas to the Board and I feel sure their individual and collective experience will prove to be invaluable to Purplebricks as it continues its rapid growth and development internationally.”

 

General Meeting and circular to Shareholders and further details of the Subscription

It is not expected that the Company’s existing share issuance authorities will be sufficient for the issue of the New Ordinary Shares pursuant to the Subscription and therefore the General Meeting will be held to seek approval of the Company’s shareholders (the “Shareholders”) to grant authorities to the directors of the Company to allot further shares for cash on a non-pre-emptive basis (the “Resolutions”). A circular, together with a notice convening the General Meeting, will be sent to Shareholders in due course.  It is expected that the General Meeting will be held on or around 18 April 2018 and that, subject to the Resolutions being passed, the New Ordinary Shares will be issued shortly thereafter, subject to admission of the New Ordinary Shares to trading on AIM (“Admission”). 

The Board considers the Subscription and the Strategic Investment to be in the best interests of the Company and Shareholders as a whole and accordingly unanimously recommend Shareholders vote in favour of the Resolutions to be proposed at the General Meeting as they have irrevocably undertaken to do in respect of their own beneficial holdings and the shareholdings in which they are interested amounting, in aggregate, to 54,333,929 Ordinary Shares, representing approximately 19.8 per cent. of the Company’s issued share capital as at the date of this announcement. Certain of the Company’s largest shareholders holding, in aggregate, 113,976,258 Ordinary Shares representing approximately 41.6% per cent of the Company’s issued share capital as at the date of this announcement have also provided irrevocable undertakings to vote in favour of the Resolutions.

Axel Springer’s obligation to subscribe for the New Ordinary Shares is conditional upon the Resolutions being duly passed at the General Meeting and Admission becoming effective on or before 8.00 a.m. on 19 April 2018 (or such later time and date as the Company and Axel Springer shall agree, not being later than 8.00 a.m. on 31 May 2018).  It is also conditional upon the Share Sale becoming unconditional. 

Under the terms of the agreement for the Subscription, Axel Springer has the right to appoint a director to the Board.  This right will continue for so long as Axel Springer holds a specified percentage of the issued share capital of the Company from time to time (being, as at the date of this announcement, 10 per cent.), which is subject to downwards adjustment if Axel Springer’s holding in the Company is diluted in circumstances in which Axel Springer is not offered the opportunity to participate in the issue of Ordinary Shares by the Company.

Axel Springer has agreed that it will not dispose of any New Ordinary Shares for a period of 90 days following Admission.

Purplebricks will apply to the London Stock Exchange plc for the New Ordinary Shares to be admitted to trading on AIM.  Subject to the Resolutions being passed at the General Meeting, it is expected that Admission will become effective shortly after the General Meeting on 19 April 2018.

The New Ordinary Shares, when issued and fully paid, will rank pari passu in all respects with the existing Ordinary Shares and will rank for all dividends or other distributions declared, made or paid after the date of issue of the New Ordinary Shares.

Market Abuse Regulation

Market Soundings, as defined in the Market Abuse Regulation (“MAR”), were taken in respect of the Strategic Investment with the result that certain persons became aware of inside information, as permitted by MAR. That inside information is set out in this announcement and has been disclosed as soon as possible in accordance with paragraph 7 of article 17 of MAR. Therefore, those persons that received inside information in a Market Sounding are no longer in possession of inside information relating to the Company and its securities.

 




Linking Shareholders and Executives :Share Talk

If anyone reads this article found it useful, helpful? Then please subscribe www.share-talk.com or follow SHARE TALK on our Twitter page for future updates.

Terms of Website Use

All information is provided on an as-is basis. Where we allow Bloggers to publish articles on our platform please note these are not our opinions or views and we have no affiliation with the companies mentioned

WordPress Security