Zoopla Property Group Plc Acquires uSwitch Group

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Zoopla Property Group Plc (LSE:ZPLA) ("ZPG", "the Group" or the "ZPG Group"), the digital media business which owns and operates some of the UK's leading online property brands including Zoopla and PrimeLocation, today announces that it has conditionally agreed to acquire Ulysses Enterprises Limited ("uSwitch", and together with its subsidiaries, the "uSwitch Group") for £160m based on a cash-free, debt-free enterprise value, plus a performance-based earn-out of up to £30m (the "Acquisition").
 
Founded in 2000, uSwitch is the UK's #1 price comparison website and lead generation engine in the home services sector (energy and communications) by market share[1] and is one of the most widely recognised and trusted brands in the price comparison space. uSwitch generated revenues of £62.9m and Adjusted EBITDA of £16.2m in the year ended 31 December 2014 with revenue CAGR of 20% (2012-2014). In 2014 the uSwitch website generated 50.3 million visits and saved consumers over £112m off their energy bills alone.

The acquisition of uSwitch is a significant step in ZPG's mission to be the most useful resource for consumers and the most effective marketing partner for professionals across the property space. The transaction brings together two of the UK's best-known digital consumer brands and fastest-growing technology businesses of the past few years.
 
With its highly engaged audience of over 44m visits per month to its websites and mobile apps, ZPG is well positioned to lead the next phase of innovation across the property portal space and the creation of a single platform where consumers can research, find and manage their homeis a natural next step. The businesses have highly complementary brands and both are consumer champions empowering consumers to make smarter property decisions.
 
The combined Group will offer advertisers enhanced lead generation, more frequent user engagement and additional revenue opportunities from new products and data. uSwitch will continue to operate as a standalone brand and platformand the uSwitch management team will remain with the business including CEO Steve Weller. The acquisition is expected to complete by end of June 2015.
Transaction Highlights
 
 - Acquisition of uSwitch, the leading price comparison website for switching in home services (energy and communications) sector, with a revenue CAGR of 20% (2012-2014)
 - The acquisition is expected to be significantly enhancing to Adjusted EBITDA and adjusted basic earnings per share in the first full financial year following Completion[2]
 - Consideration of £160m based on a cash-free, debt-free enterprise value, represents 9.9x uSwitch's 2014 Adjusted EBITDA plus a performance-based earn-out of up to £30m
 - The acquisition will be partly funded by existing cash resources with the remainder funded by a new 5-year £150m credit facility, of which c.£125m will be drawn down at Completion
 - Strong deleveraging profile due to cash generated by the combined Group; opening net debt ratio of around 2.0x the combined Group's EBITDA
 - The combined Group will maintain ZPG's current dividend policy of 35-45% payout ratio of the combined Group profits
 - The transaction provides an exit for uSwitch's institutional backers, including LDC, the private equity arm of Lloyds Banking Group and Forward Internet Group
  
Acquisition benefits

 - ZPG continues to lead innovation in digital property market, building a single home services platform for consumers to research, find and manage their home
 - Enhanced products and services which empower consumers to make smarter property decisions, manage their household bills and save money
 - Additional revenues from a market leading business with a complementary brand audience and business model
 - Earlier and more frequent engagement with consumers and new products driving enhanced lead generation to ZPG members
 - Timely engagement with consumers during the decision-making stage of the property journey and additional ZPG data driving enhanced lead generation to uSwitch advertisers
 
Alex Chesterman, Founder & CEO of Zoopla Property Group Plc said, "This is a transformational acquisition and a meaningful step towards delivering our long-term strategy to be the market-leading resource for consumers and most effective lead generation engine for professionals in the property space. We have always been at the forefront of innovation in our industry and this deal brings together two of UK's best known and fastest growing digital brands as a natural next step towards creating the ultimate platform where consumers can research, find and manage their home."

"The uSwitch team has developed a trusted brand and leading position in home services price comparison and switching. With the plans we have to develop our combined services, consumers will have a single resource for all their property needs and this enhanced engagement with our users will create a unique advantage for our advertisers."
 
"We have also announced a current trading update today which shows strong traffic growth up 11% year-on-year, with mobile engagement up 34% as consumers increasingly rely on the Group's services at home, work and on the move. We continue to grow our ARPA as our members appreciate the benefits of the scale and differentiation of our audience."
 
Steve Weller, CEO of uSwitch added, "I am immensely proud of everything that we have achieved over the last 15 years and look forward to the next phase of our journey. Consumers need our support now more than ever before and, with ZPG's impressive credentials as an innovative, consumer-empowering business, I am confident that we will be able to help even more people save money on their household bills."
 
Consideration
 
The total consideration range for the acquisition is £160m to £190m, based on a cash-free, debt-free enterprise value, dependent on the performance of the uSwitch business.
 
 - Initial Consideration of £142.6m payable in cash on Completion will be satisfied entirely by cash funded from a mixture of existing cash resources and a new 5-year £150m credit facility
 - Institutional Deferred Consideration of £10m payable in Dec-15 to the Institutional Sellers which may be satisfied by an issue of new ordinary shares or cash at ZPG's discretion
- Management Deferred Consideration of £7.4m payable in FY17 and FY18 to the Executive Sellers and Management Sellers in cash
 - Earn-out Consideration of up to £30m based on Adjusted EBITDA and revenue performance targets payable in FY16 to all Sellers in cash or up to 50% in shares at ZPG's discretion, with 50% of the Earn-out Consideration payable to Executive Sellers and Management Sellers to be paid in FY17 and FY18
 
Approvals & Timetable
 
Completion is conditional upon:
 
(a) ZPG shareholder approval given the size of the acquisition, which is a Class 1 transaction under the Listing Rules
(b) FCA approval of the change of control of uSwitch
 
A circular containing the notice convening a General Meeting of the Company to approve the transaction will be sent to shareholders shortly, and completion of the acquisition is expected by June 2015.
 
DMGT has agreed, pursuant to a letter of intent, to vote in favour of the acquisition in respect of its beneficial holding which amounts to 132,788,961 ordinary shares or 31.76 per cent of the issued share capital of the Company. In addition, all of the Directors holding ordinary shares in the Company have irrevocably agreed pursuant to separate respective irrevocable undertakings to vote in favour of the acquisition in respect of their own beneficial holdings which amount, in aggregate, to an additional 4.69 per cent of the issued share capital of the Company.
 
ZPG Current Trading
 
Our consumer-led approach and proposition continues to drive strong engagement across ZPG's websites and mobile apps as consumers increasingly rely on the Group's unique tools and data for property search and research. The board of directors of the Company (the "Board") is pleased with the Group's progress in the six months ended 31 March 2015 and anticipates revenues of over £41m and Adjusted EBITDA of around £21m for the six months ended 31 March 2015
 
Below is a selection of unaudited key performance indicators ("KPIs") for the six months ended 31 March 2015.
 
KPIs
 
ZPG continues to experience strong traffic growth as visits to the Group's websites and mobile apps increased by 11% to 265.5m in the six months ended 31 March 2015, with average monthly visits of 44.2m over the period. Mobile devices now account for 63% of monthly visits and are up 34% compared with the same period last year, as consumers continue to use the Group's services to search and research the property market at work, home and on the move.
 
The Group has experienced strong Agency ARPA growth over the period as members continue to see the benefits of digital marketing with the Group. The increase in Agency ARPA has been driven by (i) current members purchasing more products and upgrading packages; and (ii) lower ARPA members leaving the Group. As guided in February 2015, the Group has experienced further UK agency membership churn due to competition.
 
The Board is pleased with the overall Developer performance as the Group continues to develop a targeted proposition. The increase in Developer ARPA has been driven by (i) current members upgrading packages; and (ii) increasing spend on targeted email campaigns and other depth products.
 
As at 31st March 2015, ZPG had £38.8m of cash on the balance sheet and no debt.
 
uSwitch Current Trading
 
uSwitch has had a good start to the calendar year with a robust trading performance. The energy vertical is performing particularly well as uSwitch has fulfilled a higher level of switches compared to last year and also increased its rate per sale.