Earlier this month Silver Lake, a US private equity firm, offered £2.2bn to buy Zoopla Property Group (ZPG).

Andrew Miles

This is by far the biggest deal so far in the broader UK proptech universe and warrants further analysis. Before speculating on the direction ZPG might take post acquisition, it’s helpful to consider the context of the deal.

Firstly, Silver Lake is a tier-one American technology-focused private equity firm with $39bn (£29bn) under management. It holds or has exited investments in Alibaba, Tesla, Skype, Zygna and Symantec. It is not looking to make small bets on unambitious management teams.

Secondly, ZPG has an excellent management team, led by Alex Chesterman. The team has a proven track record of execution, including smart mergers and acquisitions and responding well to competitive threats. In addition, it is important to realise that ZPG is not just a portal business; it is a diversified property technology business including portals (Zoopla and Prime Location), comparison websites for utilities, mortgages and other products (uSwitch, Money.co.uk), agency software (PSG) and data (Hometrack).

Zoopla’s diversification strategy, which was started out of necessity (against the dominance of Rightmove and the possible competitive threat of OnTheMarket), has been very successful and created a huge cross-selling machine.

Zoopla website

Furthermore, the acquired businesses were bought at sensible multiples that when examined with the benefit of hindsight, after growth and cross selling, look cheap.

Thirdly, companies often ‘go private’ in order to make changes that are too radical, ambitious or long term for the public markets to tolerate.

Big ambitions

Given the above, I think it is fair to assume the new ZPG/Silver Lake team will have big ambitions. For the UK property industry, this means more change. For the UK proptech industry, it’s exciting, because very large amounts of American capital has landed for the first time, dwarfing the mostly small sums invested by British investors to date.

What’s next for Zoopla Property Group?

Here I lay out some thoughts as to what direction ZPG may take over the next three to five years. These are in no particular order, but hopefully present some interesting food for thought:

  1. Expand the core UK businesses. As mentioned above, ZPG has strong businesses in search, comparison, software and data with proven cross selling. It may expand these businesses through organic growth and selective M&A. Going deeper into the mortgage space is perhaps likely. This is a huge market that is ripe for disruption and Zillow (in the US) and REA Group (Australia) are perhaps blueprints for how this can be done.
  2. Make more proptech investments and invest in new technologies. Related to the above, ZPG may look to make further selective start-up investments in addition to the four or so it has already made. It may adopt a Google-like strategy and later acquire the ones that turn out to have the highest potential or be most disruptive to its core business. Longer term, there are opportunities to apply AI to property search, mortgages and conveyancing. ZPG will have the perfect platform, and the financial firepower, to incubate these technologies.
  3. Expand abroad. Certain portals have successfully expanded abroad (for example REA Group across Asia). This requires deep market knowledge and local operational capability to succeed – and is therefore challenging. I would hypothesise, however, that Silver Lake is a good partner to do this with, due to its international footprint and connections.
  4. Acquire an online agent or a traditional agency to reverse up the value chain and offer home sellers an end-to-end service. This is less likely in the short term because it involves cannibalising existing portal revenues from agents as well as building new operational capabilities. There are a lot of opportunities elsewhere without embarking on such a radical, risky move.
  5. Move more strongly into commercial. I think it’s likely ZPG will do this, so the question becomes: how far and how fast? The UK commercial market is arguably heading towards a tipping point in its adoption of technology. It is also a large market.

Of the above, the first point is probably a given – almost ‘business as usual’. Regarding points two to five, of course I do not know what Chesterman has planned, but it’s a safe bet it will have far-reaching implications for our industry.

Andrew Miles is chief executive and co-founder of Realla