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Charcol in management buyout or daylight robbery?

Every article I read on the management buyout of Charcol seems to attach a successively lower figure to the company’s value. We are now down to £5m.

It demonstrates once again the most important lesson for sellers of businesses – get your timing right. If an institution comes along offering you silly money, take it and wait a few years until you can buy back your business for a fraction of the price paid.

Bradford & Bingley paid a reported £100m for Charcol less than five years ago. To see it now valued at £5m is a breathtaking drop. Was the original price paid too high or has Charcol suffered such a serious decline in its fortunes over the past few years?

Hardly the latter you would have thought, given the buoyant mortgage market over that period of time.

B&B bought Charcol in the early part of 2000 at the height of the dotcom boom. I was told at the time that a star attraction was Charcolonline. This internet service was launched in the latter part of 1999 and was the first fully operational online mortgage service in the UK market. This was of considerable annoyance to E-LOAN, which launched in a blaze of publicity in January 2000 but then fizzled out by the end of that year.

At its current valuation, Charcol joins the infamous 90% club, mainly dotcom companies whose values have dropped by more than 90% since the heady days of 2000.

Estate agents had already ridden this rollercoaster in the midto late 1980s, when banks and insurance companies stepped over each other in the rush to acquire estate agency offices. At the height of that boom up to £500,000 was being paid per estate agency office. By the early to mid-1990s the price had dropped to £50,000 or less. Scottish Widows was the last of the institutions to rush into this market, paying around £50m for the Connells estate agency chain, only to end up selling it to Skipton for £5m.

Some people feel Charcol is now being undervalued, particularly when you compare it to the likes of Mortgage Next. When a majority shareholding in Mortgage Next was acquired by Freedom Finance earlier this year, the press release issued at the time put its value at £22m.

Over the past couple of years we have seen Kensington Mortgages acquire The Mortgage Lender for circa £15m while more recently igroup were reported to be paying £30m for a 50% stake in The Mortgage Group.

Despite the different circumstances of these two direct-to-consumer mortgage brokerages, the figures would make the sale of Charcol for £5m look like nothing short of daylight robbery.

Nevertheless, I wish John Garfield and the rest of management team well.


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