CoStar's OnTheMarket Acquisition: Tebb to Remain CEO, Shareholder Questions the Deal

The latest news to come out of Costar's expected acquisition of UK agent-owned portal OnTheMarket has raised a couple of headlines this morning.

OnTheMarket CEO Jason Tebb is expected to remain in charge if and when the $100M takeover goes through, while one OnTheMarket shareholder has suggested that shareholders are being "mugged and should kick back" at Costar.

CoStar has also suggested that there will be no reduction in staff in the company, a workforce of approximately 180 people.

CoStar has vowed to invest £46.5M ($56.6M) into sales and marketing—six times OnTheMarket's current spend—to push OnTheMarket into unfamiliar territory—rivalling Rightmove for the number one spot in the UK.

Costar boss Any Florance has already gone on record with a bullish statement against incumbent market leader Rightmove, a company he says should not be operating at the margin it currently does:

"Public companies [like Rightmove] shouldn't operate at a 72% margin—it is to say that there's no way any company could ever compete in that space.

"Unless you're a taxing authority with control of the police, you can't scrape a 72% margin! There will be a couple of shakeups, a couple of rude awakenings.

"We believe the acquisition of OnTheMarket represents an attractive and efficient entry point into the £8 trillion United Kingdom residential property market.

"We see OnTheMarket as an important step in expanding our Homes.com residential network not only in the UK, but across Europe. We believe the market opportunity in Europe is over $10 billion, and we intend to participate aggressively in developing and expanding our residential marketplace network."

Costar's $100M offer represents a premium of £1.10 per share—but an OnTheMarket founder has urged the company's board to reconsider its decision.

Trevor Abrahmsohn has come out in support of the deal but questioned the value of a bid that he believes undervalues OnTheMarket's shares by 33%.

Abrahmsohn said:

"CoStar are not fools, they know that there is no room in the marketplace for a fourth portal (and it would cost too much anyway), and by the acquisition of OTM, de facto, they are buying market share on the cheap and we shouldn’t let them."

"If Costar or another big portal were instead to buy 50% of OnTheMarket at a discount, within a few months the shares would be over £2 or £3 based on hope value that such a wealthy partner would transform the fortunes of the company.

"Shareholders are being mugged and we should kick back."

Abrahmsohn suggested that OnTheMarket could and perhaps should be put up for auction so other portals like RealEstate.com.au can submit an offer.

Costar's interest in European portals was first publicised at the Property Portal Watch conference in Madrid in October, with Florance then going on the record to outline his plans for a European expansion. OnTheMarket was clearly already being tapped up, with news breaking less than two weeks later that Costar had submitted its offer for the portal.