TIDMLSL
RNS Number : 8971A
LSL Property Services
16 October 2009
+---------------------------------------+---------------------------------------+
| For Immediate Release | 16 October 2009 |
+---------------------------------------+---------------------------------------+
LSL Property Services plc
("LSL")
Acquisition of Halifax Estate Agencies Limited ("HEAL")
and
Interim Management Statement
LSL to become the second largest estate agency network in the UK
LSL Property Services plc, a leading provider of residential property services,
is pleased to announce the proposed Acquisition of HEAL, which operates an
estate agency network and an asset management business. LSL also announces its
Interim Management Statement.
Acquisition Highlights
* LSL will pay Bank of Scotland plc, a subsidiary of Lloyds Banking Group plc,
GBP1 in cash for the entire issued share capital of HEAL;
* The HEAL network, representing 218 estate agency branches, will be absorbed into
Your Move, Reeds Rains and InterCounty, making LSL the second largest estate
agency network in the UK;
* Pro-forma net assets of HEAL at 31 December 2008 were GBP38.4 million, and at
Completion will include minimum cash of GBP22.2 million to cover restructuring
and provide an element of working capital;
* LSL will benefit from HEAL's established asset management business with its
attractive client base together with a new three year asset management contract
with Bank of Scotland;
* Opportunities for LSL to develop other income streams within HEAL include
lettings and conveyancing referrals;
* The acquisition includes the transfer of circa 130 mortgage consultants who will
strengthen LSL's position within the mortgage market;
* LSL management has an excellent track record of turning around corporate estate
agency businesses;
* The Directors believe the acquisition will be cash positive in 2010 and earnings
enhancing in 2011, assuming a modest market recovery;
* Completion, scheduled for 15 January 2010, is subject to Shareholder approval;
* General Meeting to be held in November 2009.
Interim Management Statement Highlights
* Since 1 July 2009, the Group has performed ahead of management's expectations
against a backdrop of a slightly improving housing market;
* Cash generation since the half year remains strong and net debt has reduced by a
further circa GBP2 million.
Roger Matthews, Chairman, commented
"LSL is delighted to announce the acquisition of HEAL, which has a clear
strategic and financial rationale with significant benefits to Shareholders.
This is a significant opportunity for LSL to acquire a high quality branch
network, an established asset management business and pipeline of sales on
favourable commercial terms at a low point in the economic cycle. The rebranding
of 218 branches to Your Move, Reeds Rains and InterCounty brands will strengthen
LSL's estate agency position in local markets, increasing our leverage with
suppliers, brand concentration and market share in existing locations.
"Since the half year, the Group has continued to trade ahead of management's
expectations in the context of a market which has improved but continues to be
challenging against historic transaction levels. We still remain cautious about
the outlook for 2010. While any recovery is likely to be constrained by the
availability of mortgage credit and general economic backdrop, we believe
that the Group is well placed to deliver significant growth over the longer term
when market conditions improve."
For further information, please contact:
+---------------------------------------+---------------------------------------+
| Simon Embley, Group Chief Executive | 01904 715 324 |
| Officer | |
| Dean Fielding, Group Finance Director | |
| LSL Property Services plc | |
+---------------------------------------+---------------------------------------+
| | |
+---------------------------------------+---------------------------------------+
| Richard Darby, Nicola Cronk, | 020 7466 5000 |
| Catherine Breen | |
| Buchanan Communications | |
+---------------------------------------+---------------------------------------+
Notes to Editors
LSL Property Services plc is one of the leading residential property services
companies in the UK and provides a broad range of services to its clients who
are principally mortgage lenders, as well as buyers and sellers of residential
properties. For further information, please visit our website: www.lslps.co.uk.
Acquisition of Halifax Estate Agencies Limited
1. Introduction:
The board of LSL is pleased to announce that it has reached agreement with LBG
on the terms of the proposed acquisition by LSL of the entire issued share
capital of HEAL. HEAL operates an estate agency network and an asset management
business and is a subsidiary of LBG.
Under the terms of the Acquisition, LSL will pay BoS, part of the LBG Group,
GBP1 (one pound) in cash for the entire issued share capital of HEAL, which
comprised at 31st December 2008, GBP38.4m of net assets on a pro forma basis.
HEAL's balance sheet at Completion will include minimum cash of GBP22.2m, and
Completion of the Acquisition is scheduled to take place on 15th January 2010.
This cash is partly provided to cover restructuring and rebranding costs which
LSL will incur in connection with the Acquisition.
In view of its size, the Acquisition is a class 1 transaction for the purposes
of the Listing Rules and is therefore conditional upon the approval of
Shareholders of LSL. A General Meeting of LSL will be held in November 2009 at
45 Moorfields, London EC2Y 9AE for the purpose of approving the Acquisition. The
notice convening the General Meeting will be set out in the Circular. The
Circular is expected to be sent to shareholders, following its approval by the
UKLA, in late October and will also be available on LSL's website:
www.lslps.co.uk/investorrelations. Numis Securities Limited is acting as sponsor
to LSL in respect of the Acquisition.
2. Background to and reasons for the Acquisition:
The Directors believe that the Acquisition has a clear strategic and financial
rationale, with significant benefits for Shareholders and other stakeholders.
The HEAL network, comprising 218 estate agency branches, will be absorbed into
the main brands within LSL, namely Your Move, Reeds Rains and InterCounty. The
Acquisition also brings HEAL's asset management business into the LSL Group,
which the Directors believe is particularly attractive in view of its client
base.
The key benefits which flow from this transaction are as follows:
a. The Acquisition presents LSL with the opportunity to grow further its
estate agency business, by acquiring the fourth largest estate agency network in
the UK at a low point in the economic cycle, on favourable terms. The quality
and productivity of HEAL's branch network is comparable to LSL's own branches.
However, its financial performance has been impacted by the relatively high
level of corporate infrastructure costs, in particular LBG central recharges and
HEAL head office and regional management costs. In addition, the Directors
believe that the HEAL business has been run primarily for the distribution of
financial services products, which has also impacted on HEAL's ability to trade
profitably.
b. LSL has a proven track record in acquiring, integrating and turning around
a loss making corporate estate agency business, namely the acquisition of Your
Move from Aviva in 2004.
c. In addition to the HEAL estate agency network, LSL will acquire an
established asset management business, which LSL intends to run independently
from LSL's existing asset management business, LSL Corporate Client Department,
which has developed into a market leader since its launch in 2007. Under the
terms of the Acquisition, LSL has negotiated a new three year contract with BoS
to provide asset management services to businesses within LBG, which includes a
commitment as to volume subject to satisfactory service delivery. The HEAL asset
management business also has a number of contracts with other lenders. Further,
LSL estate agency branches will also be added to the panel of agents instructed
by BoS's own internal retained asset management business.
d. This Acquisition will make LSL the second largest estate agency network in
the UK (based on number of branches), adding 218 branches (including 93
franchised operations), to create a combined network of 584 branches. These
numbers include 10 branches in Northern Ireland, providing LSL with an
introduction into this market. The Directors believe that this will increase
LSL's purchasing power in the market and improve its brand concentration, which
should increase LSL's local market share.
e. It also presents LSL with opportunities to develop other income streams
within the acquired branches, such as lettings and conveyancing referrals, which
the Directors of LSL believe are currently under-utilised.
f. The Acquisition includes the transfer of approximately 130 mortgage
consultants who produced in excess of 8,000 mortgage completions in 2008 and,
following Completion will operate principally under the Your Move and Reeds
Rains brands. The Directors believe that this will increase LSL's importance to
key lender clients, which in turn will reinforce LSL's strategic relationships.
3. Information on HEAL:
HEAL is the fourth largest estate agency network in the UK (Source: Estate
Agency News October 2009), comprising 125 owned branches and 93 franchised
branches. It operates its estate agency business within England, Wales and
Northern Ireland. HEAL also includes a repossessions asset management unit.
The HEAL business offers a broad range of services and products, including
residential estate agency, asset management, referrals for mortgage advice and
insurance arrangements. There are 31 branches that also provide residential
lettings and property management services. The business has approximately
1,050 employees, including 130 mortgage consultants.
The following is a summary of the adjusted profit and loss statement for HEAL
for the three years ended 31st December:
+------------------------------------------------+----------+----------+----------+
| | 2008 | 2007 | 2006 |
+------------------------------------------------+----------+----------+----------+
| | GBP'000 | GBP'000 | GBP'000 |
+------------------------------------------------+----------+----------+----------+
| Revenue | 54,089 | 96,186 | 108,476 |
+------------------------------------------------+----------+----------+----------+
| Operating loss before exceptional | (51,108) | (24,610) | (23,693) |
| (costs)/income and share based payments | | | |
+------------------------------------------------+----------+----------+----------+
| Exceptional (costs)/income | (4,463) | 328 | 1,241 |
+------------------------------------------------+----------+----------+----------+
| Share-based payment charge | (2,538) | (2,398) | (1,897) |
+------------------------------------------------+----------+----------+----------+
| Operating loss | (58,109) | (26,680) | (24,349) |
+------------------------------------------------+----------+----------+----------+
| Net finance income /(expense) | 679 | (1,285) | (1,165) |
+------------------------------------------------+----------+----------+----------+
| Profit/(loss) on sale of property, plant and | 144 | 22 | (23) |
| equipment | | | |
+------------------------------------------------+----------+----------+----------+
| Dividend income | 974 | 1,065 | 0 |
+------------------------------------------------+----------+----------+----------+
| Gain on sale of investments | 54,156 | 56,900 | 16,720 |
+------------------------------------------------+----------+----------+----------+
| Share of post tax profit of a joint venture | 192 | 3,938 | 1,590 |
+------------------------------------------------+----------+----------+----------+
| Profit/(loss) before tax | (1,964) | 33,960 | (7,227) |
+------------------------------------------------+----------+----------+----------+
HEAL's trading to date in 2009, at the operating level, reflects an improvement
over 2008 against a backdrop of a slightly improving housing market. The HEAL
business has been loss making at the operating profit level, with its
profitability adversely affected by the level of recharges of LBG corporate
costs and by the HEAL head office and regional management infrastructure costs.
In 2008 the cost base included GBP39.7m of LBG central recharges, GBP19.4m of
head office and regional costs and GBP4.4m of identified one off costs. The
Directors estimate that, by using LSL's own corporate head office and regional
infrastructures, it can reduce these running costs (in comparison to HEAL's 2008
statutory accounts) by in excess of GBP50m per annum.
4. Principal terms and conditions of the Acquisition:
Under the terms of the Acquisition Agreement, LSL has conditionally agreed to
acquire the entire issued share capital of HEAL from BoS for GBP1. Completion of
the Acquisition is conditional on the Resolution being passed at the General
Meeting. Because all relevant staff engaged in HEAL's business are employed by
HBOS, rather than HEAL, the Acquisition Agreement includes provisions to deal
with the transfer of staff directly into HEAL and LSL's relevant operating
subsidiaries.
As the HEAL business is currently loss making, a key part of this Acquisition is
that, at Completion, HEAL contains sufficient cash to enable LSL to effectively
and efficiently carry out its restructuring and re-branding plans. Included
within the completion balance sheet will be a minimum of GBP22.2m cash which
will cover restructuring costs not reflected within the completion balance sheet
and provide an element of working capital. These restructuring costs will
include re-branding, reorganisation and dilapidations. In addition, the HEAL
business includes freehold property with an estimated value of GBP8m.
The Acquisition Agreement contains indemnities from BoS to cover
certain liabilities which may arise in respect of pensions, financial services
mis-selling and non-operational premises, to ensure that these liabilities will
ultimately remain with LBG following Completion.
The parties have agreed a three month period between exchange and Completion,
and LSL intends to commence its migration plans during this period and to have
achieved the target operating model by the end of January 2010.
BoS and LSL have also agreed the terms of a three year asset management
agreement, which will commence on the date of Completion, with a commitment with
regard to instructions both into HEAL and a three year agreement to instruct
into LSL Group's estate agency branches again commencing on the date of
Completion.
Further details of the terms and conditions of the Acquisition are set out in
Appendix 1.
5. Irrevocable undertakings:
Certain major shareholders of LSL, the Directors and certain management
shareholders of LSL, representing 56,408,715 shares in aggregate, and 54.16 per
cent of the issued share capital of LSL, have given irrevocable undertakings to
vote in favour of the Resolution to approve the Acquisition.
6. Financial effects of the transaction:
In considering the merits of this Acquisition, the Directors have assumed that
conditions in the UK housing market will not improve significantly during the
remainder of this year or during 2010. Based on Bank of England mortgage
approvals for house purchase data (September 2009), the Directors believe that
national transaction levels for 2009 will be less than 600,000 for the full
year, which, whilst an improvement on 2008 (512,000), is still considered to be
well below normalised levels of circa 1.2m per annum. For modelling purposes,
the Directors have assumed a continuation of the current run rate of transaction
levels in 2010.
Based on these market assumptions, the Directors believe that the Acquisition
will have a positive cash impact on the LSL Group in 2010, and will be earnings
enhancing and cash flow positive in 2011 and subsequent years when market
conditions improve. In normal market conditions, in 2007 when housing
transaction volumes were above 1.2m per annum, average profits per LSL owned
estate agency branch were in excess of GBP40,000 per annum.
The GBP22.2m minimum of cash included in the balance sheet of HEAL prior to the
completion of the Acquisition will be used to finance (i) the restructuring of
the business, (ii) the corporate re-branding of the individual offices, (iii) to
cover specific liabilities, such as dilapidations; and (iv) the subsequent
marketing launch of the business as part of the LSL Group, which is planned for
the first quarter of 2010. The transfer of net assets will create negative
goodwill which will be reflected as an exceptional profit in the 2010 accounts.
The combination of HEAL's estate agency business with LSL's existing estate
agency business together with the strategic benefits of the Acquisition,
including, specifically, the new asset management contract, leveraging of the
brands and increased purchasing power is expected to result in an improvement in
the financial performance of the two businesses in 2010 and beyond.
7. Management and employees:
LSL has high regard for the quality of the front line staff within HEAL and
within HEAL's asset management business. LSL's intention in respect of the
restructuring and subsequent rebranding of the business is to retain the
majority of the branch network and branch staff and, following Completion, to be
committed to investing in both people and brands.
Currently all employees engaged in HEAL are employed by HBOS and such employees
are intended to be transferred into the relevant trading subsidiaries of LSL at
Completion. Following exchange of the Acquisition Agreement, the parties will
commence a consultation process, covering all aspects of the Acquisition,
including the transfer of such employees pursuant to the TUPE Regulations.
There will be no changes to the Board or senior management team of LSL as a
result of this Acquisition.
8. Current trading, trends and prospects:
An Interim Management Statement of LSL for the period commencing from 1 July
2009 is set out at the end of this announcement.
9. General meeting:
Completion of the Acquisition is subject to Shareholder approval being obtained
at the General Meeting which is expected to be convened in November 2009,
following posting of the Circular in late October.
10. Recommendation & action to be taken:
The Directors consider the terms of the Acquisition to be in the best interests
of Shareholders. Accordingly, the Directors unanimously recommend that
Shareholders vote in favour of the Resolution. The Directors, who together own
in aggregate 27.5 per cent of the issued share capital of LSL have irrevocably
undertaken to vote in favour of the Resolution.
1 This statement regarding earnings enhancement is not a profit forecast and
should not be interpreted to mean that LSLs future profits, earnings or
earnings per share exceed or match those of any prior year.
2 This statement regarding improved financial performance of the two businesses
is not a profit forecast and should not be interpreted to mean that LSLs future
profits will exceed or match those of any prior year.
Interim Management Statement
Since 1 July 2009, the Group has performed ahead of management's expectations
against a backdrop of a slightly improving housing market.
Turnover for the 8 months ended 31 August 2009 compared with the same period in
2008 was as follows:
* Group turnover for the period was down by 18%
* Surveying turnover was down by 21%
* Estate Agency and Financial Services turnover was down by 16%
In addition, cash generation since the half year remains strong and net debt has
reduced by a further circa GBP2m.
Estate Agency:
Transaction volumes in the estate agency division have continued to stabilise
over the summer months and are ahead of expectations. This, together with cost
efficiencies commensurate with what are still relatively low activity levels,
gives us confidence that our core agency brands, Your Move and Reeds Rains, will
perform ahead of our expectations for 2009.
In addition our asset management business and corporate lettings continue to
grow market share and deliver profits ahead of expectations.
Surveying:
The surveying division has continued to maintain its market share in the face of
the contraction in the mortgage market. Overall, the volume of mortgage
valuations is slightly behind our expectations as a result of further
contractions in the re-mortgage market together with certain key clients
operating at lower than anticipated levels over the summer months. However, as a
result of the cost actions previously taken, the division is well placed for the
current environment and well positioned to take advantage of any future upturn
in mortgage lending activity.
Outlook:
Since the half year, the Group has continued to trade ahead of management
expectations in the context of a market which has improved but continues to be
challenging against historic transaction levels.
We still remain cautious about the outlook for 2010. While any recovery is
likely to be constrained by the availability of mortgage credit and general
economic backdrop, the Directors believe that the Group is well placed to
deliver significant growth over the longer term when market conditions improve.
APPENDIX 1
SUMMARY OF PRINCIPAL TERMS AND CONDITIONS OF THE ACQUISITION
1. Pursuant to the Acquisition Agreement, LSL has conditionally agreed to
purchase and BoS has conditionally agreed to sell the entire issued share
capital of HEAL.
2. Completion of the Acquisition Agreement is conditional upon the approval
of the Shareholders at the General Meeting.
3. The consideration payable under the Acquisition Agreement is GBP1.00.
There is a requirement in the Acquisition Agreement that HEAL has minimum cash
in hand and at the bank on Completion of GBP22.2m
4. The consideration of GBP1.00 is subject to the following post Completion
adjustment mechanisms:
4.1 a cash at Completion adjustment, which provides that, in the event that
HEAL has less than approximately GBP22.2m of cash as at the close of business on
the date of Completion, as shown in a net current asset statement to be prepared
by BoS, BoS shall pay to LSL a sum equivalent to the shortfall on a pound for
pound basis on demand;
4.2 a net current asset adjustment, which provides that if the actual net
current asset value is less than the estimated net current asset value by an
aggregate amount of GBP500,000 or more, BoS shall pay to LSL an amount equal to
that part of the shortfall which exceeds GBP500,000. Any payments due by BoS
pursuant to this mechanism and the cash at Completion mechanism (at 4.1 above)
are subject to a cap of GBP50m;
4.3 a trading adjustment, which provides some protection to LSL for a
material adverse change in HEAL's estate agency activity levels between exchange
and Completion. Any payments due pursuant to this mechanism are subject to a cap
of GBP4m; and
4.4 a redundancy costs adjustment, which provides that if the redundancy
costs payable by LSL post Completion are less than such pre-agreed amount, then
LSL shall pay to BoS an amount equal to 50% of the difference between such
pre-agreed amount and the total redundancy costs.
5. There is to be a split exchange and Completion with a three month
interregnum period, during which period neither LSL nor BoS has any right to
terminate the Acquisition Agreement (save in the event that certain completion
deliverables are not provided on Completion). The completion date is anticipated
to be 15th January 2010.
6. Both LSL and BoS are subject to pre Completion restrictions and pre
Completion obligations that must be complied with during the three month
interregnum period and prior to Completion.
7. The Acquisition Agreement provides for the employees who work in the HEAL
business but that are employed directly by HBOS to be transferred to LSL and/or
HEAL pursuant to the TUPE Regulations on Completion and LSL agrees to indemnify
both HBOS and BoS in respect of any liability arising from, inter alia, any
employee's termination of employment by LSL after Completion.
8. The Acquisition Agreement also provides:
8.1 for warranties (which are not unusual for an agreement of this nature) to
be provided by BoS in relation to, inter alia, accounting, franchisees,
taxation, property, employment, insurance, litigation, intellectual property and
trading matters;
8.2 for LSL to provide certain warranties to BoS confirming, inter alia,
constitutional authority and non insolvency status;
8.3 for indemnities to be provided by BoS to protect against certain
liabilities (which are not unusual for an agreement of this nature)
8.4that the aggregate liability of BoS shall not exceed GBP90,000,000 and in
respect of a claim under the warranties and/or indemnities, shall not exceed
GBP5,000,000, save in respect of a breach of certain employment warranties,
title warranties and warranties relating to the capacity of BoS to enter into
the Acquisition Agreement and save in respect of certain indemnities;
8.5for usual limits on liability of BoS in respect of claims for breach of
warranty under the Acquisition Agreement;
8.6that both parties will provide non compete and non solicitation covenants
which will apply for a period of two years post Completion.
APPENDIX 2
SCHEDULE OF DEFINITIONS
+---------------------+-------------------------------------------------------------+
| "Acquisition" | the proposed acquisition by LSL of the entire issued share |
| | capital of HEAL pursuant to the Acquisition Agreement |
+---------------------+-------------------------------------------------------------+
| "Acquisition | the conditional share sale and purchase agreement in |
| Agreement" | respect of the Acquisition dated 16 October 2009 between, |
| | inter alia BoS and LSL relating to the Acquisition the |
| | principal terms of which are described in Appendix 1 of |
| | this announcement |
+---------------------+-------------------------------------------------------------+
| "Board" | the board of directors of LSL |
+---------------------+-------------------------------------------------------------+
| "BoS" | Bank of Scotland plc, a company registered in Scotland with |
| | number SC327000 |
+---------------------+-------------------------------------------------------------+
| "Circular" | the Circular to be sent to Shareholders in connection with |
| | the General Meeting |
+---------------------+-------------------------------------------------------------+
| "Completion" | completion of the Acquisition |
+---------------------+-------------------------------------------------------------+
| "Directors" | the directors of LSL |
+---------------------+-------------------------------------------------------------+
| "FSMA" | Financial Services and Markets Act 2000 |
+---------------------+-------------------------------------------------------------+
| "FTE" | full time equivalent employees |
+---------------------+-------------------------------------------------------------+
| "General Meeting" | a general meeting of LSL which is expected to be held in |
| | November 2009 for the purpose of approving the Acquisition |
+---------------------+-------------------------------------------------------------+
| "HBOS" | HBOS plc a company registered in Scotland with number |
| | SC218813 |
+---------------------+-------------------------------------------------------------+
| "HEAL" | Halifax Estate Agencies Limited a company registered in |
| | England and Wales with number 20445933 |
+---------------------+-------------------------------------------------------------+
| "Intercounty" | ICIEA Limited a company registered in England and Wales |
| | with number 2045933 |
+---------------------+-------------------------------------------------------------+
| "LBG" | Lloyds Banking Group plc a company registered in Scotland |
| | with the number SC095000 |
+---------------------+-------------------------------------------------------------+
| "LBG Group" | LBG and its subsidiaries |
+---------------------+-------------------------------------------------------------+
| "Listing Rules" | the listing rules made by the UKLA for the purposes of part |
| | VI of FSMA |
+---------------------+-------------------------------------------------------------+
| "LSL" or "Company" | LSL Property Services plc a company registered in England |
| | and Wales with the number 05114014 |
+---------------------+-------------------------------------------------------------+
| "LSL Group" or | LSL and its subsidiary undertakings |
| "Group" | |
+---------------------+-------------------------------------------------------------+
| "Reeds Rains" | Reeds Rains Limited a company registered in England and |
| | Wales with number 5114014 |
+---------------------+-------------------------------------------------------------+
| "Resolution" | a resolution to approve the Acquisition to be proposed at |
| | the General Meeting which will be set out in the notice of |
| | the General Meeting at the end of the Circular |
+---------------------+-------------------------------------------------------------+
| "Shareholders" | the shareholders of LSL |
+---------------------+-------------------------------------------------------------+
| "TUPE Regulations" | the Transfer of Undertakings (Protection of Employment) |
| | Regulations 2006 |
+---------------------+-------------------------------------------------------------+
| "UKLA" | the UK Listing Authority |
+---------------------+-------------------------------------------------------------+
| "Your Move" | your-move.co.uk Limited a Company registered in England and |
| | Wales with number 01861469 |
+---------------------+-------------------------------------------------------------+
Numis Securities Limited, which is authorised and regulated by the Financial
Services Authority, is acting for LSL Property Services plc and for no-one else
in connection with the contents of this document and will not be responsible to
anyone other than LSL Property Services plc for providing the protections
afforded to clients of Numis Securities Limited, or for providing advice in
relation to the contents of this document or any matters referred to herein.
This information is provided by RNS
The company news service from the London Stock Exchange
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