John Charcol fights to find a buyer as brokers feel crunch

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The Independent Online

John Williams has a difficult task. The banker at Gleacher Shacklock was hired in January to sell John Charcol, one of the UK's most prominent mortgage brokers. Three months on, with banks and building societies in a race to withdraw from the market and house prices dropping rapidly, rumours are rampant that the company is having a hard time attracting interest at the £50m level pitched.

Chief executive, Ian Kennedy, declined to dispel the notion yesterday, but indicated that the process, one way or another, could be wrapped up soon. He said: "Over the next two months, we will either sell the business, and, if that doesn't happen, we'll look at restructuring the finances." He added: "Either way, this process is not market-driven."

Mr Williams's search for a buyer was not helped by the doubts expressed recently by KPMG, the firm's auditors, when it questioned the company's ability to function "as a going concern".

If a deal fails to materialise, it would be a blow for Jon Moulton, the head of the buyout group Alchemy Partners, who bought a 15 per cent stake in the company after it was sold by Bradford & Bingley. He was one of three directors – the others were John Garfield and Charles Wishart – who injected £1.5m to shore up the company's balance sheet at the end of last year.

The irony of such a situation would not be lost on the City, as Mr Moulton has been one of the most vociferous prophets of the slowdown now shuddering through the property market.

Yet he could have company. BC Partners agreed to pay £400m for Foxtons last May. There were whispers at the time that, by selling out, Jon Hunt, the founder of the infamously aggressive estate agency, was calling the top of the UK property market.

The deal came a month after the tussle for Countrywide, the estate agency that was ultimately won by Apollo, the US buyout group, which fought off a rival offer from 3i with an eye-watering £1bn final bid. It, like other buyouts that were done at the top of the property market, may yet turn out to have been a pyrrhic victory. The debt instruments that Apollo used to finance the deal are today trading well below the value at which they were sold due to concerns that, as the UK market declines, so will Countrywide's business, and it will thus be forced to turn to its American owner for support.

The concern is not surprising. The market today bears almost no resemblance to the one in which these heady deals were struck. Mortgages for new homes have fallen by 40 per cent in the past six months alone. Lenders that relied heavily on the wholesale credit markets – Northern Rock, for example – can't function today, while banks and building societies have been furiously yanking their most attractive deals.

"Six months ago, lenders were attractive, competing with each other to offer the best deals," Mr Kennedy said. "Now they are competing to be the most unattractive in the market. Inquiries are up from last year, but the difficulty is actually placing customers with vendors. Demand is exceeding supply."

He said that estate agencies will be more vulnerable to the downturn than mortgage brokers because the latter will be able to benefit from refinancings, which have grown as house sales have plummeted. Last year, the ratio of purchase mortgages to refinancings was running at two to one. Today, the exact opposite is true. John Charcol launched a fee-free telephone service in January to boost volume in the falling market.

Mr Kennedy declined to say whether the company managed to break into profitability after making a small loss in 2006. Aside from Mr Moulton's holding, Advantage Capital, a buyout firm, owns another 15 per cent of the group, while three directors involved in the MBO – Mr Garfield, Mr Wishart, and Ian Darby – also hold 15 per cent apiece. The rest is in the hands of its employees. The company kicked off the auction after receiving several expressions of interest last year.

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