Rightmove watches and waits for bidding war

When one bid arrives, stock markets invariably hope and often bet that another will follow and so it has proved with Rightmove, the property market portal that now finds itself in the shop window rather than the houses its estate agency clients are seeking to shift.

The revelation of a possible bid for Rightmove from Rea Group, the Australian property powerhouse, prompted a flurry of “buy” orders from City traders desperate not to miss out. As the new week got under way, shares in Rightmove leapt by more than quarter to 708p, valuing the business at £5.6 billion.

Not surprisingly, the suggestion of a takeover was the talk of the City. Sean Kealy, an analyst at Panmure Liberum, said Rightmove’s investors should expect a premium of up to 60 per cent for their shares in the FTSE 100 company, given its dominant position in the UK market. Alastair Reid, at Investec, said the business could represent an “attractive investment opportunity” for bidders, “given an easing interest rate environment, recent new investments starting to bear fruit and fears around CoStar’s market entry likely to prove overstated”.

That mention of CoStar was significant. Shares in Rightmove have underperformed the market amid fears that it could face increased competition from OnTheMarket, which was bought by CoStar, an American property group, for £99 million towards the end of last year. Kealy said the deal had created a “significant” depression on Rightmove’s valuation and had prompted its shares to trade more cheaply than those of its European peers.

The takeover interest from Rea prompted speculation that the threat from CoStar has been exaggerated. Rea has already faced disruption from CoStar through its investments in America and analysts at Jefferies, the investment bank, suggested that “Rea, by its actions, does not appear to be concerned by the rising competitive pressures in the UK”.

Rea, based in Melbourne, has hired bankers to appraise cross-border transactions and has decided that Rightmove presents a “transformational opportunity” to build a global presence. The Australian company is majority-owned by News Corp, the parent company of The Times, with a stake of 61 per cent and is the largest property listing group in Australia, with 3,000 employees working across 16 brands. It is listed on the Australian stock exchange with a market capitalisation of about £15 billion.

In contrast, Rightmove’s stock has been becalmed as other FTSE 100 companies have made gains over the past year, making it vulnerable to outside interest. Private equity firms have been actively scouting for opportunities to buy property websites in recent years, with EQT agreeing to buy PropertyGuru Group, a Singapore-based player, for $1.1 billion in August and Cinven agreeing to buy a majority stake in Idealista, a Spanish property site, in June.

Rea said it was considering a possible cash-and-shares offer for Rightmove after the Australian Financial Review reported that the company had appointed Deutsche Bank as its financial adviser and was considering a big transaction.

In a statement to the Australian stock exchange, Rea said: “There are clear similarities between Rea and Rightmove. Rea sees a transformational opportunity to apply its globally leading capabilities and expertise to create a global and diversified digital property company, with No 1 positions in Australia and the UK.”

City analysts reserved judgment. Kealy said: “There are generally limited cross-border synergies in classifieds, with differences in each underlying market requiring different technology and sales and marketing efforts to manage relationships between agents and dealerships. It’s not immediately clear what the rationale for the acquisition would be, beyond pure opportunism.”

Jefferies said Rightmove’s business model “offers little in the way of cross-border synergies” and Rea would need to bring “strategic and execution insights” to generate value from the investment.

Meanwhile, Rightmove’s prospects as a standalone company appear to be improving after a rate cut from the Bank of England and amid an opportunity to grow revenues under Johan Svanstrom, the company’s chief executive, who was appointed in February 2023.

Rightmove’s estate agents have benefited from a 19 per cent increase in inquiries from buyers since interest rates were cut on August 1 andSvanstrom, 52,has promised to create new revenue streams by expanding non-core businesses such asmortgage services and commercial real estate over the next five years.

Kealy said: “While a larger group potentially could afford to accelerate investment in Rightmove’s new strategic areas, Rightmove could do this itself with the cash currently spent on the buyback.”

Rightmove has been spending an average of £150 million a year on share buybacks, but Roddy Davidson, at Shore Capital, a broker, warned that the company was taking a risk with its new revenue streams. “The group is now in a more challenging phase regarding the ease with which it can develop new revenue opportunities and achieve price inflation,” he said.

Jefferies said that Rea would be capable of providing the strategic insights required for an expansion of Rightmove’s non-core revenues, given that the group ran a mortgage broking business and had been operating in the commercial real estate sector for a long time.

Rea has not yet revealed any terms for its potential bid and has until September 30 to make a firm offer or drop out of the bidding process. Analysts said Rightmove’s shareholders may not wish to take a significant proportion of the deal value in shares listed on the Australian stock exchange and that a straight cash deal, should an offer materialise, probably would be more attractive.