Propty Franchis Regulatory News (TPFG)

MartinCo Plc

("MartinCo" or the "Group")

Acquisition of Legal & General's Property Franchise Business

MartinCo plc (AIM: MCO), one of the UK's largest property franchise businesses, today announces that it has acquired the entire issued share capital of Xperience Franchising Limited and Whitegates Estates Agency Limited (together "Xperience"), comprising the entire property franchise business of Legal & General (the "Acquisition") for a consideration of £5.0m in cash plus an amount representing the net assets of Xperience at completion, expected to be approximately £1.0 million in cash. The business is being acquired debt-free and with no inter-company loans.

Xperience is a pure franchised lettings and estate agency group with 89 offices and 75 franchisees, comprising four highly regarded High Street brands, CJ Hole, Ellis and Co, Parkers and Whitegates with its financial services offered by Legal & General.

The acquisition is expected to be immediately earnings enhancing for MartinCo.

Highlights

· Increased UK footprint - The enlarged Group now comprises 282 franchised offices and 1 company owned office. It now owns the master franchise licences for five established property brands and is trading in an additional 44 franchise areas (after allowing for overlap).

· Substantial addition of lettings portfolio - Xperience brings over 11,000 tenanted, managed properties, increasing the Group total to over 43,000. One objective of the IPO in December 2013 was to raise funds to acquire portfolios of tenanted, managed properties. The Directors' goal of 40,000 managed properties by the end of 2015 has been exceeded within 11 months of the IPO.

· Strengthened management - the Xperience franchise management team is now part of the Group and Xperience's Managing Director Michael Stoop has accepted the position of Group Managing Director.

· Tight strategic fit in London - the acquisition puts the Group in a strong position within the London market - Ellis & Co adds 20 offices to the existing 26 Martin & Co offices with overlap between the offices limited to only two franchise areas.

· Strengthened estate agency business - based on the six months ended 30 June 2014, Xperience derived 48.7% of its franchise management fees from estate agency activity compared to 7.1% at Martin & Co. For the combined Group estate agency would have represented 18.9% of total revenue.

· Operational efficiencies - the Acquisition will enable the Group to eliminate some duplicate central costs as well as supporting the growth of the enlarged business.

· Financial Services agreement with Legal & General - The Group has entered into a 10 year financial services agreement with Legal & General under which Legal & General provides the Group's franchisees with access to whole of market mortgage products, life assurance and general insurance products.

· The acquisition is expected to be immediately earnings accretive - Xperience generated revenue of £1.8m and PBT of £0.6m (of which £0.2m was an exceptional item) in the 12 months ended 31 December 2013. Further growth is expected over the next few years.

Background to the Acquisition

At the time of MartinCo's IPO in December 2013, the Directors had identified an opportunity to pursue a "buy and build" strategy by acquiring lettings portfolios for its franchisees to manage.

At the time, the Group had recently added an estate agency service to its primary lettings business and intended to grow this revenue stream as well as revenues deriving from financial services.

Xperience

Whitegates Estate Agency Ltd, established in 1978, owns the master franchise for Whitegates, trading at 36 offices through 32 franchisees in Yorkshire, Lancashire, Merseyside, North Wales, East Midlands and Warwickshire. Xperience Franchising Limited owns the master licence for Ellis & Co, established in 1850. All 21 Ellis & Co offices, apart from Tonbridge in Kent, are within the M25 orbital, operated by 20 franchisees. Xperience Franchising Ltd also owns the master franchise for CJ Hole, established in 1865, which operates 17 offices through 9 franchisees in Avon & Somerset and Gloucestershire, as well as owning the master franchise for Parkers, established in 1948, which operates 15 offices through 14 franchisees in Berkshire, Oxfordshire and North Hampshire. Xperience generated revenue of £1.8m and PBT of £0.6m (of which £0.2m was an exceptional item) in the 12 months ended 31 December 2013. Franchise management fees from franchisees estate agency activity represented 48.7% of total franchisor revenue in the six months ended 30 June 2014.

Further details of the Acquisition

MartinCo has acquired the entire issued share capital of Xperience Franchising Limited and Whitegates Estates Agency Limited, together comprising the entire property franchise business of Legal & General for a consideration of £5.0m in cash plus an amount representing the net assets of Xperience at completion, expected to be approximately £1.0 million in cash. The business is being acquired debt-free and with no inter-company loans.

The cash is partly utilised from funds raised at the time of the IPO, and partly bank borrowing.

As part of the transaction, MartinCo and Legal & General have entered into a 10 year financial services agreement under which Legal & General appoints a panel of mortgage brokers to provide the Group's franchisees with access to whole of market mortgage products, life assurance and general insurance products. Legal & General has also agreed to work with the Group on a financial services strategy for the whole of MartinCo's franchise network.

Effects of the Acquisition

The Acquisition adds 89 offices to the Group, increasing total UK offices to 283 and increasing the number of tenanted managed properties to over 43,000 . It is estimated that the Acquisition will increase Group revenue by c. £0.3m in the final two months trading of 2014.

Xperience significantly increases the Group's footprint of offices across the UK, adds a substantial portfolio of tenanted, managed properties and provides the Group with a multi-brand franchise to increase its overall UK market share for letting and estate agency services.

In addition, the Acquisition provides further economies of scale and opportunities for operational efficiencies as well as developing the Group's estate agency business.

Xperience's franchise management team, comprising seven employees, is now part of the Group and Xperience's Managing Director Michael Stoop has accepted the position of Group Managing Director, working across all of the Group's brands.

The Acquisition will significantly increase the number of the Group's offices within the M25 orbital, adding 20 Ellis and Co offices to the 26 existing MartinCo offices. The Directors will be assessing the case for adopting a single brand in this strategically important location.

The regional brands of CJ Hole, Parkers and Whitegates extend the Group's UK footprint for MartinCo, adding 44 franchise areas where the Group is not currently trading and increasing the Group's national market share, particularly in regions around Bristol, the M4 corridor, Yorkshire, Lancashire & Merseyside and in London

Ian Wilson, Chief Executive of MartinCo plc, said:

"This acquisition of the entire property franchise business of Legal & General is a significant step forward in the Group's development and was made possible by our IPO and fundraising in 2013. This acquisition secures a very substantial portfolio of tenanted, managed properties and balances our mix of lettings and estate agency revenue. It significantly extends our agency network in London and brings with it both an experienced franchise management team and a powerful partner in Legal & General to help the Directors exploit opportunities for financial services across our enlarged office network. I'm delighted to welcome Michael Stoop, Xperience's Managing Director, who has a lifetime of estate agency and franchising experience, as our new Group Managing Director".

"The Group will own five franchise master licences and each of its five brands has the potential for further development. The Group's first brand, Martin & Co is a truly national brand predominately focused on lettings activity, while the strength of the four acquired brands lies in their regional focus and balanced mix of lettings and estate agency income streams."

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About MartinCo

MartinCo Group operates one of the UK's largest residential letting businesses through its market leading brand Martin & Co. Prior to announcing the acquisition of Xperience, the Group comprised of 157 franchise owners trading at 193 offices, with a further one trading office which is currently Group owned.

The Group's franchisees manage approximately 31,000 properties on behalf of private clients. The Group added an estate agency service in 2013 with 150 of its franchise owners licensed to offer this service.

MartinCo is a multiple award winning business and the Directors and senior management have over 100 years of combined residential letting and estate agency experience.

www.martinco.com