Foxtons, the London estate agent famous for its ‘bullish’ approach and fleet of liveried Minis, has (not surprisingly) had a rotten time of late. With the London property market in the doldrums, Foxtons’ business has nose-dived to such an extent that it’s now breached the terms on its bank loans – which means that unless it can come to some arrangement with its lenders, it could be in danger of going bust. It’s all a serious embarrassment for BC Partners, its private equity owner – though the travails of over-reaching financiers and aggressive estate agents aren’t going to arouse too much compassion among the general populace...
Foxtons borrowed £260m from Bank of America and Mizuho when BC Partners bought the company last May – which, as it turns out, was right at the very top of the property market. At a BC press briefing yesterday (an unusual step for the group, which has always been pretty aloof and opaque even by private equity standards) its UK co-head Andrew Newington admitted, with remarkable frankness, that the £360m deal was an absolute stinker. ‘We made a wrong call,’ he confessed. ‘In hindsight, we made the wrong assessment of the market.’ In its worst case scenario, BC had factored in a 30% drop in transactions – but in fact, it’s been more like 60%. Not surprisingly, this means Foxtons has failed to hit its profit targets.
What happens next is largely up to the banks. Technically, they could ask for their money back, particularly since BC is refusing to pump more equity into the company (presumably because it’s reluctant to pour good money after bad) unless the banks write off some of the debt – which is highly unlikely. Since Foxtons doesn’t seem to be in any danger of running out of cash, it’s more likely that they’ll renegotiate the terms of the debt. So BC will take a bath on the deal – much to general amusement, no doubt – but it should keep Foxtons afloat.
Apart from the schadenfreude crowd, someone else with reason to celebrate this latest turn of events is Foxtons founder Jon Hunt, who appears to have flogged the business at the perfect moment and escaped with a few hundred million of private equity cash to boot (although apparently he loaned BC £50m of the sale price, which he won’t get back now). Indeed, there’s even talk that he might now try to buy his business back at a fraction of the sale price.
The question is: will Foxtons be able to bounce back when the market recovers, as its owners insist? Its aggressive approach – most famously exposed in a BBC documentary a couple of years ago – may have helped it flourish in a booming property market. But it might not play so well in the post-crunch world...
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