Debt-loaded takeover plunged Foxtons owner into negative equity

Published 09th Mar 2010

Estate agent chain known for its Minis falls victim to the housing crash as profit slumps 70% and debt reaches nearly £350m.

Foxtons became known for its Minis. The estate agents was sold at the top of the market for £360m but is now worth £163m less.


The meltdown in the housing market was mirrored at the estate agents Foxtons, where a collapse in profits was magnified by the private equity-backed company's struggle to service its huge debts.

The most recent accounts for the business, which is owned by BC Partners, show that revenues slumped 33% in 2008 as the housing market boom turned to bust in the credit crunch.

Profits at an operating level dropped 70% to £10m, with the company recording a pre-tax loss of £218m after the value of the business was written down by £163m to reflect "current profitability levels and prudent growth assumptions".

More than 200 Foxtons agents – known for driving Minis emblazoned with the company's livery – lost their jobs as the housing market went into freefall. The total headcount was cut by almost a quarter to 1,173 as its new owners tried to right the ship.

Despite the cull, Foxtons' highest-paid director, its chief executive Michael Brown, received a near-50% pay rise, taking home a package worth £650,000, according to overdue accounts filed at Companies House.

Foxtons was sold by its founder, Jon Hunt, at the top of the market for £360m in May 2007. The entrepreneur pocketed £300m.

BC's managing partner, Andrew Newington, admitted in an interview last year that buying the business was a mistake: "We made the wrong call. The market decline was way too steep and we didn't anticipate it."

The acquisition saw the estate agent take on some £300m of debt just before house prices went into reverse and the accounts show that had rolled up to a net debt of £347m by the end of 2008. As the credit squeeze got under way, the interest payable on Foxtons' bank loans almost doubled to £27.7m, contributing to total finance charges of almost £39m. That compared with a total of £20.3m for the nine months to 31 December 2007.

Meeting the interest payments ate into the company's cash reserves, which dwindled from £11m to an overdraft of £4.3m.

After more than a year of talks, matters came to a head over the Christmas period, when Foxtons was taken over by its lenders, Bank of America and Mizuho. A refinancing has been worked under which the banks agreed to cut the company's debt to £120m in return for BC Partners accepting a reduced stake. BC Partners is thought to have injected £50m into the business.

The restructuring also saw a £50m loan from Hunt written off, ending his association with the company that he founded in 1981.

In the directors' report attached to the 2008 accounts, the large headline loss is blamed on acquisition costs as well as the substantial goodwill charge. "It does not relate to the underlying economic fundamentals of the business," they say.

"The market looks to have hit the bottom during 2008 and has shown signs of recovery in 2009." A spokesman said the business had made a strong start to 2010 and was "performing very well".

Source: ' Guardian '

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