Tuesday, August 29, 2006

Associated Newspapers buys SimplySwitch for £22m

"LONDON - Associated Newspapers has acquired SimplySwitch, the utility, broadband and phone price comparison service, in a £22m deal that includes a three-year earn-out for the management team."

I suspect they're grossly overpaying. Simply Switch have been roundly thrashed by USwitch in this arena. Utilities suppliers generally pay around £20 per switch. There are around a million regular switchers, making a total of £20 million potential revenue over the year for all the players. If Simply Switch can capture 10% of the market (I suspect they probably have a share around that size now) and have a 50% profit margin (not impossible) we can see £1 million profit a year. As the wholesale prices rise, we should see consumer becoming more accustomed to switching and the number of people switching will also rise.
Unfortunately, this rosy picture is about to be assaulted. Xelector and USwitch are battling it out between them to provide third party listings on major sites. MoneySupermarket and some of the other financial aggregators are moving into the utility bill provision market, hoping to capitalise on their strong brands in the personal finance market.
I think this is the wrong price to pay for a company and the wrong time to buy it. Good luck associated!

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