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Expansion through acquisition is "worth the risk" for agencies who want to grow
22 May 2019
Purchasing another agency is a complicated process, but can help you achieve growth much quicker if managed well, says a Joint Venture partner at a student accommodation provider that's expanded nationwide.
“Purchasing another company is a lot of risk, effort and full of complications,” says Elinor O'Neill. “But it can also bring massive reward and help you grow much quicker than what you would have done organically if the acquisition is managed well.” O'Neill is a Joint Venture Partner at loc8me, a student accommodation provider. The company has expanded rapidly throughout the country since it was founded by Raffaele Russo in Loughborough a decade ago, driven by its founder’s desire to bring loc8me’s vision for contemporary student accommodation to every university city in the country.
Loc8me now manages 1600 properties in Loughborough, Lincoln, Hull and Bournemouth, and is currently in the process of establishing a presence in the Capital. Much of the company’s expansion has been through the acquisition of existing businesses and portfolios in each of these locations. O'Neill’s advice for agencies who are looking to acquire another business is, firstly, to ensure the business you’re looking to acquiring is a good fit with your own company. “There's no point in taking on a huge purpose built block when you specialise in HMOs,” says O'Neill.
Doing your due diligence is crucial. “You can’t really do enough of it - talk to anybody who knows the company or who has dealt with it themselves. Usually, you won’t be able to talk to the staff before a purchase but if you can, do. Otherwise talk to anybody who knows the business or who has dealt with it themselves, like landlords,” says O'Neill.
“From there, we meet the owners, go through any questions on the accounts. So we ask for the last three years worth of statutory accounts, go through any questions from there. And then we ask to do a tour of all the houses as well as the third stage. And then after that, we probably send a head of terms, or something similar, just outlining the deal. They can either accept or reject it obviously, and negotiate.”
Loc8me also thoroughly vets the new portfolio as part of their due diligence process. “We have a checklist of all the initial questions you ask, just really basic questions like how many properties have you got managed? Are any let-only? Can you send through a copy of an example management contract? Are there any get out clauses? Can they leave? Have the owner's got any properties in the company that they're going to take out?”
She notes that every location has its unique challenges. “We’re currently going through this process in our newest city, London, where the challenges are really different - for example, the number of international tenants and the impact that Brexit might have on this demographic.”
Once the acquisition of the business is complete, O'Neill suggests considering the value of the existing brand before rebranding or shutting down existing offices. “You can track this by the amount of walk ins, enquiries from the website and so on. You might want to consider leaving the brand running, which gives a choice of companies to the customer and might add something valuable to your existing brand.”
If not, remember that shutting down an office is a lot of administration and manual labour hours, says O'Neill, including getting rid of furniture, finding and cancelling lease agreements for things like internet, phones and the building itself. O'Neill said transferring one database to another can also take a significant amount of time. “we’re paperless so we had a crazy amount of hours scanning years worth of one company documents and uploading them to our drive.”
It’s also important to ensure the transition for your new landlords, says O'Neill. “We invite new landlords to come to our office, meet the staff, walk around their property whilst we give any recommendations and quotes for works needed to achieve higher rents and really try to welcome them to the loc8me vision for student accommodation.”
Don’t forget about your new staff, either. “You can’t just go in there and change everything on day one and expect all the staff to be happy with it. Learn from them, and then try and make them involved as possible, from the very beginning,” she says. “The majority of the time you end up with new people with fresh ideas.” O'Neill doesn’t deny acquiring a new business is a complicated process, but she’s adamant it’s worth it. “It might seem like a hard slog, but it's worth it in the end if you've got an appetite to grow.”
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