OnTheMarket to be taken over by CoStar in £99m deal

OnTheMarket said on Thursday that it has agreed to be taken over by US commercial real estate information group CoStar in a £99m deal.

Under the terms of the transaction, OnTheMarket shareholders will receive 110p per share in cash, which is a premium of around of around 56% to the closing share price on Wednesday.

OnTheMarket said it has the support of 29.51% of its share capital, which includes its six largest shareholders.

Chairman Chris Bell said: "The offer from CoStar recognises the quality of OnTheMarket and the significant potential of the business, while offering shareholders an attractive opportunity to realise their investment at a substantial premium to the prevailing share price."

News of the takeover came alongside the company’s interim results, which showed that revenue nudged up 1% to £16.9m, while adjusted earnings before interest, tax, depreciation and amortisation were flat at £3.1m.

At 1200 BST, the shares were up 52% at 107p.

Russ Mould, investment director at AJ Bell, said: "Shareholders are being offered a chunky 56% premium to last night’s closing price by CoStar. It’s a classic move - a US business that is already an expert in the same sector is using the acquisition of a London-listed stock to expand into a new segment of the UK market. In CoStar’s case, the deal will give it a foot in the door for the UK residential property sector.

"OnTheMarket was set up as a rival to Rightmove and Zoopla, and while it didn’t necessarily cause those businesses too much stress, it did make slow but steady progress."

Rightmove tumbles

Shares of larger rival Rightmove tumbled on news of the takeover.

In research written before OnTheMarket confirmed the deal, Citi said the news would be negative for Rightmove.

The bank said it believed there had been some hope that Rightmove could be one of the M&A targets, noting that the shares were up 7% since the chief executive of CoStar said on 5th October that the company planned to allocate a portion of its $9bn 'war chest' to consolidating European property portals.

It also noted that CoStar has firepower - $450 to $500m free cash flow per year - so Rightmove could face more intense competition in residential and other areas, especially given CoStar's strength in commercial.

Citi maintained its ‘sell’ rating on Rightmove.

But Bank of America Merrill Lynch took a different view, reiterating its ‘buy’ rating on Rightmove as it awaited "further developments".

BofA, which has a 625p price target on the stock, said the news could initially be taken negatively for Rightmove, given CoStar’s significant scale - it has a market cap of $32bn - and expertise in US residential and commercial real estate.

"That said, history has shown unseating incumbents in the classified space is no easy feat,” the bank said.

"And Rightmove is a significant market leader even by classifieds’ high standards, boasting 86% share of consumer engagement."