BETHESDA, MD -- CoStar Group, Inc. (NASDAQ: CSGP), the leading provider of information services to the U.S. commercial real estate industry, today announced a cash offer for London-based Property Intelligence plc. The offer values the existing issued shares of Property Intelligence at approximately $16.4 million.
Property Intelligence, whose operations principally consist of Focus Information, is a leading provider of commercial real estate information services in the United Kingdom. The company was founded in 1984 and has approximately 700 customers, including the top 20 U.K. real estate services firms. Focus Information's main products provide information on buildings, available space, requirements, tenants, lease deals, comparable sales, planning information and photos across the United Kingdom.
"We are excited about the opportunity to acquire such a strong market position in the United Kingdom," stated CoStar Group CEO Andrew C. Florance. "The Focus Information business that we are acquiring is profitable. Its products enjoy a leadership position and there is a strong management team in place to achieve continued growth. Our companies have fundamentally the same business model."
According to Florance, the addition of a strong U.K. operation will position CoStar to deliver integrated service to its multinational customers. Among CoStar's 20 largest U.S. customers, about two-thirds have operations or affiliates in the United Kingdom.
"These clients are involved in the vast majority of leasing and sales transactions on behalf of Fortune 1000 companies in the United States and the United Kingdom, and will benefit from receiving standardized commercial real estate information from a single provider," Florance noted. "We believe convenient access to information on the U.S. and the U.K. will enhance our customers' ability to service their international clients, and will ultimately expand the overall market for commercial real estate information services."
"The ability to provide market information for both the United States and United Kingdom also will strengthen CoStar's offering to financial institutions that invest in real estate equities and mortgages," Florance continued. "This acquisition marks a major step toward our long-standing goal of creating an information platform in the commercial real estate industry that will support global investment decisions," he stated.
"We believe our subscribers will increasingly demand more sophisticated technology and more comprehensive information in the future," commented Michael Nicholson, Founder and Managing Director of Property Intelligence. "This transaction with CoStar can provide the resources and know-how Focus Information will require to satisfy both these demands."
CoStar has secured employment agreements with three key managers who collectively have 18 years of tenure in the Property Intelligence operations. Jonathan Bray, who has over six years of experience managing all aspects of Focus Information, will serve as Managing Director of Property Intelligence, along with Jeremy Carr-Smith, Business Development Director, and Matthew Hopkinson, Operations Director. Nicholson will continue to assist Property Intelligence in an advisory role.
"I'm excited about the future of the combined companies," stated Bray. "Given the similarity in the business of CoStar and Property Intelligence, the combination of these businesses should create an opportunity for CoStar to use its competitive advantages in software, capital, client relationships and scale to achieve a growth in sales and an improvement in margins that would be difficult for Property Intelligence to achieve independently."
The United Kingdom represents approximately a 20 percent expansion of CoStar's potential market, based on the population of the respective regions, Florance estimated. Western Europe overall would more than double the size of CoStar's potential market in the United States. "The London market is comparable in size to New York or Los Angeles," Florance pointed out. "We have a lot of experience in these markets. We know how they perform over time and we are excited about what we believe we can accomplish there over time."
"With cash flow from operations and our strong balance sheet, we are in an excellent position to take on this acquisition while simultaneously pursuing other opportunities," added Florance. "In addition to adding the U.K. operations, we are announcing today that in 2003 we plan to enter a limited number of new U.S. cities and expand our product offerings in established markets."
For the year ended July 31, 2002, the Focus Information operations generated approximately $6 million in revenues, with pre-tax operating margins of approximately 10 percent, according to Frank A. Carchedi, CoStar's Chief Financial Officer. With the Focus Information operations expected to be combined with CoStar early in the first quarter of 2003, the Company expects 2003 revenues to grow to approximately $95 million, a growth rate of approximately 20 percent over expected 2002 revenues, Carchedi noted. With this acquisition and further investment in U.S. products and markets, the Company expects pro forma earnings, which excludes purchase amortization and the related income tax benefit, to quadruple to approximately $0.40 per share in 2003 compared to the expected $0.10 per share in 2002. The Company also expects to achieve GAAP-basis earnings during 2003. With the achievement of the expected results, we believe we can maintain positive cash flow and grow cash balances to over $30 million by the end of 2003, Carchedi stated.
The Focus Information operations do not include Intelligent Addressing, a separate division within Property Intelligence that was created to develop a national address database in joint venture with local government. As part of the Offer, Intelligent Addressing is being sold to a company controlled by Nicholson.
The Offer, which has been approved by the respective boards of directors of CoStar Group and Property Intelligence, is being made through CoStar Limited, a wholly owned subsidiary of CoStar Group. The Offer is conditional upon valid acceptances being received by at least 90% of the outstanding shares of Property Intelligence, the disposal of Intelligent Addressing, and the passing of resolutions by the shareholders of Property Intelligence. CoStar Limited has received irrevocable commitments from the holders of approximately 80% of the shares of Property Intelligence to accept the Offer.
All of the option holders of Property Intelligence have also irrevocably agreed to exercise their options and to accept the Offer. CoStar Limited expects to pay approximately $400,000 to these option holders, net of cash received upon the exercise of such options. These payments will be offset by the proceeds from the sale of Intelligent Addressing.
If the conditions are met, then CoStar expects that the Offer will become unconditional in all respects and that CoStar will take legal ownership of the tendered shares of Property Intelligence in January 2003.
Management will conduct a conference call to discuss the Property Intelligence acquisition and guidance for 2003 at 2:00 p.m. ET on Monday, November 25, 2002. This conference call will be broadcast live over the Internet at http://www.costar.com/corporate/investor. If you would like to join by telephone, please call (888) 688-0419 within the United States or (706) 634-0964 outside the United States. A replay of the conference call will be available two hours after the live call concludes through midnight on December 1, 2002. The replay telephone number is (800) 642-1687 within the United States or (706) 645-9291 outside the United States. Refer to Conference ID 6829909. The replay will also be available over the Internet through midnight on December 1, 2002.
About CoStar Group, Inc.
Headquartered in Bethesda, MD, CoStar Group, Inc. (NASDAQ: CSGP), is the leading provider of information services to the U.S. commercial real estate industry. CoStar's suite of products offers customers access to the most comprehensive, verified database of commercial real estate information in 50 U.S. markets. The company has approximately 800 employees and contractors in 32 offices nationally, including the industry's largest professional research organization.