23 May 2023 – Last week it was announced that the online estate agent Purplebricks sold to Strike for the token sum of £1.
When Purplebricks first came on the scene, the online estate agent caused a stir with its new offering. As a lower cost and more flexible alternative, the new kid on the block quickly gained momentum.
Charging sellers a flat rate rather than a percentage of the sales price, Purplebricks seemed to ride high on the wave. At one point, the company was valued at over £800m.
But in the past two years, cracks started to appear, and now the wave has come crushing down. After a restructure, several management reshuffles and staff redundancies, Purplebricks was put up for sale in February.
It is expected that the online estate agent will make a loss of between £15 – £20 million this year. But now that Purplebricks sold to Strike, what will happen next?
Job Losses And CEO To Step Down
The announcement of the sale last week noted that the Purplebricks business, its assets and all of its liabilities have been sold to its rival Strike for £1 in a solvent deal.
While the sales price was only one pound, the deal states that Purplebricks will retain up to £5.5 million of cash reserves, which will be returned to its shareholders after the completion of the deal.
The Purplebricks directors unanimously support the deal. Shareholders still have to vote in favour of the deal for it to complete, with 50% approval needed.
Purplebricks also proposes to delist once the deal has completed. However, this also needs to be voted for by shareholders, with 75% shareholder approval needed.
The company’s CEO Helena Marston will resign from her role after the deal has been completed. Most other board members have also announced they will step down once the deal has gone through.
Purplebricks’s staff will transfer to Strike, but it’s expected that redundancies are on the card. Strike has already made redundancies in an attempt to cut costs amid losses.
The stock market reacted to the news of the sale with share prices dropping below £1. With 0.71p per share, share prices have collapsed after the announcement.
Which Business Model Will Dominate?
Both Purplebricks and Strike are online estate agents who changed the way we sell our houses. Purplebricks brought in the online model, which allowed them to offer estate agent services at lower prices.
Rather than charging a percentage of the sales price, as highstreet estate agents have done in the past, the online estate agent charged a fixed fee. With this approach it drove down prices and forced the market to follow suit or miss out.
Strike, who not long ago was known as Housesimple, went a step further. Under the new name, the online agent now offers to sell houses for free. It caused a stir when the company came out with this new business model.
The big question now that Purplebricks sold to Strike is, if both business models will remain in operation.
There are several options possible. Strike could change Purplebricks business model to mirror their own. One of Strikes main shareholders, Charles Dunstone, has hinted that this might happen.
Purplebricks has dramatically changed the industry by driving down the cost of estate agency and we aim to combine its significant brand recognition with an even more disruptive business model. In bringing together the two brands, we will supercharge Strike’s mission to democratise house selling by empowering customers to have more control over a process that has barely changed for 200 years.
Charles Dunstone, Partner at Freston Ventures, Joint Major Shareholder of Strike
But Strike might also run both brands alongside each other, keeping each business model. Purplebricks is one of the most known estate agents in the UK, thanks to a wide-ranging marketing campaign.
Either way, Mr Dunstone did emphasise that the new bosses will continue the online model, with no plans to move to bricks and mortar estate agents.
We remain committed to the online model, which offers customers a much better experience at a far lower cost. This is a positive outcome for anyone looking to sell their home and save money doing so.
Charles Dunstone, Partner at Freston Ventures, Joint Major Sharholder of Strike
The reactions from traditional estate agents seem to see the sale of Purplebricks to Strike as a sign that the online estate agent model has failed.
Given the stir Purplebricks has caused when it first launched, it’s not a surprise that traditional estate agents feel their business model has come out on top.
However, only time will tell what will happen. And it might be overhasty to predict the end of online estate agents, given how much time people spend online. So let’s wait and see how this merger will impact on the housing market.
