UK online broker Purplebricks enters Germany in JV with Springer

British online estate agent Purplebricks is making its first foray into the German market, teaming up with media giant Axel Springer to buy a stake in the country’s market leader, Homeday.

Purplebricks will invest €12.7m (£11.1m) for a 50% share in a new joint venture between the pair, NewCo, which will acquire 25.9% of Homeday’s shares - with a view to taking a bigger stake if it hits performance targets. Purplebricks will then have invested €12.7m for a 12.9% holding in the German operation Analysts at Investec said the deal would allow Purplebricks to combine its expertise in online estate agency (it claims a 70% market share in the UK) with Axel Springer’s knowledge of the local market.

While only around 600,000 German homes change hands each year, compared to 1.2m in the UK, agents there typically charge much higher commission, which the analysts said presented a big opportunity for digital players.

Michael Bruce, group CEO of Purplebricks, said: "Our investment in Homeday secures for us a strong foothold in Europe's second largest residential real estate market. This is a good opportunity for Purplebricks, allowing us to partner early with a dynamic and committed management team while remaining focused on realising the opportunity in our existing markets.”

The transaction will be the latest overseas expansion announced by Purplebricks as it diversifies its revenue base. In July, it announced plans to buy DuProprio, a Canadian real estate company, and its English language subsidiary, ComFree, for almost £30m.

The acquisition underlined the land-grab opportunity ‎for international growth even as Purplebricks grapples with the losses arising from heavy investment in marketing and brand awareness. It already operates in parts of the US.

The company lost £26m on a pre-tax basis in the year to April, but Michael Bruce, its chief executive, has said that the increasing brand awareness justifies the outlay as "we continue to win over consumers to the modern way of buying and selling property". In its last financial year, almost £10bn-worth of UK properties were sold on its platform.

Homeday currently controls around 50% of the online German market. It made a loss of €3.2m on revenues of €4.0m last year, a figure expected to double in 2018, and is projected to break even by 2021. Founded in 2015, Homeday, which operates website homeday.de, claims that it has brokered more than €1 billion’s worth of real estate deals in Germany. It offers local realtors across 65 local markets a platform for matching with property owners and streamlining the selling process. Total annual sales commission on residential housing sales in Germany is estimated at €5.1bn, said Purplebricks.

Axel Springer, which owns newspapers including Die Welt and Bild as well as the US-headquartered publisher Business Insider, also owns 11.5% of Purplebricks after making a £125m investment in March. Purplebricks has a market capitalization of about €650m.

The duo will increase their stake in Homestay to as much as 54.4% if it hits certain targets by August next year, which would require an additional £17.5m (€20m) of investment from Purplebricks.

Homeday's management team, led by CEO and founder Steffen Wicker, will continue to run the business under the Homeday brand. Purplebricks and Axel Springer will each have a seat on the Homeday board.