Foxtons’ founder and 100% owner, Jon Hunt, is a man with big ideas.
Last week, he made it known that Foxtons is considering an estimated £400m stock market flotation in order, Hunt says, to expand its US and UK operations.
“We are investing for what we hope will be a glorious future,” he says. “We are mature enough and profitable enough to go public.”
But is the unrebutted figure of £400m realistic? Foxtons’ accounts (see box, p78) certainly don’t support the valuation. Last year, Foxtons made £98,000 profit on a turnover of £82m.
After rumours that the company was in talks to be taken over by Savills for £80m earlier this year, many in the market are asking why Foxtons needs so much more cash for its US expansion or whether its flotation plans are just a handy way for Hunt to get his money out – or even just a big PR stunt.
The upmarket London estate agent has thrived despite being at the centre of a series of scandals. It admitted telling staff to destroy rivals’ “For sale” boards for a short period in 2001 and appeared in the BBC undercover documentary Whistleblower earlier this year, which depicted staff putting forward false offers to sellers, faking documents and allegedly passing on information from the company’s independent mortgage broker arm on how much buyers could afford to pay.
Foxtons issued a statement after the programme, saying “Foxtons has in place a rigorous training process, during which its employees are told repeatedly of their statutory and contractual duties, and the high standards expected of them.” It also said that the Foxtons employees shown in the BBC programme had since left the firm.
But with the announcement that the company has appointed Credit Suisse as adviser on a possible initial public offering, Hunt seems to be keen to show the investing public that Foxtons has turned over a new leaf.
“I think that, in the past, we weren’t as open with a couple of the newspapers as they would have liked,” says a Foxtons spokesman. “Therefore, they were happy to sling as much mud at us as possible.
Foxtons says it plans to use the cash from the float to expand its operations, especially in the US, where it has offices in the tri-state area of New York, New Jersey and Connecticut and plans to open a seventh next year.
However, Foxtons’ US operation is already losing money. Company accounts for last year (see box) show that Foxtons US made a loss of £8m, nearly three times more than it lost the previous year. The company says that it expects its US business to be profit-able “within one to three years”.
US house prices lowest for 35 years
And, with the US Commerce Department revealing that the median price for new homes sold in September fell by the largest amount compared with the previous year in 35 years, to $217,100 – the lowest median house price in two years – is this the best time for Foxtons to expand in the US?
“The market in the US is depressed now. We think this will lead to a shake out in the traditional realtor sector,” says the spokesman. “The US economic model of realty is that, as the market expands, more people come into the sector as realtors. However, in the bad times they go back to waitressing or hairdressing or whatever else they do.
“The plan is to expand the business in a low phase of the market when values and competition are lower so that we’re well positioned when the market recovers,” he adds. “The indications are that the US economy is not in trouble.”
The US Foxtons model is different from its UK parent. In London, Foxtons often charges sellers a premium commission, promising to advertise more heavily than other agents and to sell at a higher price than its competitors.
By contrast, Foxtons’ US operation works on the basis of offering a cut-price service. The company charges a 3% commission instead of the standard 6%.
This, however, is a break with tradition in the US, where both buyer and seller each employ state-licensed agents to act for them in a deal and where professionals claim that “every third person holds a realtor’s licence”. These agents are independent contractors working on commission, which is paid by the seller but split between both agents.
Foxtons, however, is all about exporting its UK model of higher commissions and high-visibility advertising to the US. It hopes to build up the business over the next couple of years to a total of 15 offices in Manhattan and 35 in the tri-state area.
The company is planning to open its first UK-style café-format office on Jersey City’s main street next year, and wants to replicate in the US the pushy young workforce for which it is known in the UK. It has already told its realtors to trade in their Chrysler Cruisers for Minis.
“We found that we had to make a few changes to the UK version of the Foxtons Mini in the US,” says the spokesman. “The US Minis are seen as cute, girlie vehicles, so to make them macho we used a different livery based on Nascar racing cars.
“When the US business was acquired, in 2000, they recruited whomever they could,” adds a Foxtons insider. “Foxtons prefers to employ young people eager to get ahead. We’re trying to move towards that homogenous style in the US now, like in the UK.”
For their 3%, Foxtons says, sellers will get a similar service to their US rivals within the multi-listing system, plus the services they offer their London clients. The model, it seems, is of high-end middle-market sales.
Foxtons says if it were compared with a retailer, it would be Tesco or Marks & Spencer rather than the designer stores to which Knight Frank or Savills aspire.
“We easily exceed Knight Frank and Savills in selling properties worth over £1m, but that’s because we have a big market share,” says the spokesman. “We also sell a lot of flats worth £200,000. The upper market is very attractive when there’s a lot of activity, but it also suffers from lulls. The middle market has a steady stream of activity. In the US, we’ve started at the lower end of the middle market and we’re moving upwards as our reputation is established.”
Can the model work outside London?
Rivals, however, point out that although the Foxtons model works well in London, it has yet to prove itself elsewhere. “They have a few offices in Surrey but they have yet to really establish themselves there,” says Simon Agace, managing director of Winkworth Franchising. “Their growth in the UK has been in the juiciest areas. I can’t see their model working in Liverpool or Sheffield.”
“More of Foxtons’ London rivals are cottoning on to their sales techniques in an attempt to steal market share,” he adds. “Peter Rollings [a former Foxtons MD] is employing the same model of heavy advertising with his new firm, Marsh & Parsons, while Chesterton is looking at taking bigger buildings. Now that the Foxtons model is out there, it’s capable of being copied.”
|
|
|
Foxtons is part of Heven Holdings, a group of companies owned by Jon Hunt. It includes the London estate agency business, the US business and mortgage broker Alexander Hall. Accounts for the group for the year ended 31 December 2005 show that the group made a pretax profit of £11.9m in the UK on a turnover of £82m, up from a £5.9m profit on a turnover of £70m for the previous year. However, in the US, Foxtons made a 2005 pretax loss of £8m on a turnover of £24m. This loss was nearly three times that of the previous year, £3m on a turnover of £21m. The US losses mean that, for 2005, the group made a final profit of only £98,389 on a turnover of £106m. The year before, it made a profit of £1.2m on a turnover of £91m. Accounts for the UK estate agency for the same period show that it made pretax profits of £12.6m on a turnover of £71.7m. This was an increase on the previous year, when the company announced pretax profits of £8.5m on a turnover of £60.1m. This year, however, Foxtons said it expected to make a profit of £25m on a turnover of £100m. |
