Invezz.com - Shares in UK property listings giant Rightmove (LON:RMV) surged 25% on Monday following an announcement that Australian property company REA Group, controlled by Rupert Murdoch’s News Corp, is considering a potential acquisition.
The news sent Rightmove’s stock soaring, lifting the company’s market valuation to £5.4 billion.
REA Group, which has built a strong presence in the Australian real estate market, noted the “clear similarities” between the two companies and described the potential acquisition of Rightmove as a “transformational opportunity.”
The Australian firm has not yet made a formal approach but disclosed its interest after reports surfaced that it was collaborating with Deutsche Bank (ETR:DBKGn) on a major overseas acquisition.
Under UK takeover laws, REA Group has until the end of September to either make a formal offer or withdraw its interest.
The announcement has sparked speculation about the future of Rightmove, which enjoys a commanding 80% share of the UK property listings market, far ahead of rivals Zoopla and OnTheMarket.
REA’s bid follows strong performance, but UK property market remains fragile
REA Group’s interest in Rightmove comes at a time of ongoing challenges for the UK property market.
The number of home sales in the UK is gradually recovering from a significant slump caused by high mortgage rates, but transactions are still expected to end the year well below the long-term average.
Rightmove has warned that its customer numbers are likely to decline slightly in 2024, as estate agents and housebuilders, who pay to market properties on the platform, continue to feel the pressure of the market downturn.
Despite the tough market conditions, Rightmove reported in July that its revenue grew by 7% in the first half of 2024, as customers increased their spending to market their listings more aggressively.
Rightmove’s CEO, Johan Svanstrom, who took the helm last year, has identified rental homes, mortgage services, and commercial property as key growth areas.
Additionally, the company has invested in a venture aimed at digitizing the home-buying process, which could further strengthen its position in the market.
On the other side of the globe, REA Group has been enjoying strong performance, with its stock value increasing by 25% over the past year, driven by the strength of the Australian housing market.
However, the company’s shares dropped 7% on Monday following the announcement of its interest in Rightmove, as investors anticipated that any potential deal would likely involve an equity raising.
REA’s global strategy and past UK ventures
REA Group, which began in a Melbourne garage in the mid-1990s, has grown into a major player in the global property listings market, now valued at A$26 billion (US$17.6 billion).
The company’s history includes a significant stake controlled by News Corp, which purchased 44% of REA in 2001 for about A$2 million. News Corp later increased its stake to 62% in 2005 after a failed attempt to buy out the company entirely.
The potential acquisition of Rightmove would mark a return to the UK market for REA Group, which has had a mixed history in the region.
In 2005, REA acquired Propertyfinder, a UK-based listings site, in partnership with News International, but sold the business four years later to Zoopla, reportedly at a loss.
Globally, REA has maintained a diverse portfolio of real estate businesses. It operates in India and holds a 20% stake in Move Inc., a US online listings company also controlled by News Corp.
However, the company has exited other international markets, including the sale of its European online listings business to Oakley Capital Private Equity in 2016 and its recent sale of a minority stake in southeast Asian real estate company PropertyGuru to Swedish investor EQT.
Future outlook: Potential deal implications and market reaction
The potential acquisition of Rightmove by REA Group has sparked considerable interest and speculation within the financial and real estate sectors.
If the deal proceeds, it could significantly reshape the landscape of the UK property listings market, particularly if REA leverages its expertise and resources to expand Rightmove’s offerings and capabilities.
However, the UK property market remains under pressure, with estate agents and housebuilders struggling amid high mortgage rates and a slow recovery in home sales.
While Rightmove’s dominance in the market provides it with a strong foundation, the company’s future growth will depend on its ability to adapt to changing market conditions and maintain its leading position.
For REA Group, the potential acquisition represents both an opportunity and a risk. While the company has a track record of successful expansions and investments, the UK market presents unique challenges that could impact the success of the venture.
The reaction of investors, as reflected in the drop in REA’s share price, suggests cautious optimism but also concern about the financial implications of such a large acquisition.
As the September deadline approaches, all eyes will be on REA Group to see whether it moves forward with a formal offer for Rightmove.
The outcome could have significant implications not only for the two companies involved but also for the broader real estate markets in both the UK and Australia.
This article first appeared on Invezz.com
