Examining Mergers and Acquisitions in the Real Estate Industry

The last several years have seen massive changes in the overall landscape of both the real estate industry, as well as the real estate technology sector. It got me thinking; looking back over those same last couple of years, what led to all of these different mergers and acquisitions, and ultimately was it the right move for their business?

The general theme of a recent issue of Real Estate Marketing & Technology is "growth." That being said, some acquisitions aren't always a good thing. Let's first take a look at some different technology acquisitions and the impact that brokerages in the real estate industry felt.

In March 2018, an announcement was made that booj/The Enterprise Network had been acquired by RE/MAX. At the time, booj was powering some of the largest brokerages in the nation, almost exclusively independent companies who were members of The Leading Real Estate Companies of the World network. Overnight, nearly 30,000-plus agents were displaced, and 40 real estate brokerages needed to begin looking for a replacement solution immediately. After all, most firms wouldn't want to be using the same technology stack as one of the largest franchises in the country with franchise brokerages in nearly every major market in the United States.

In RE/MAX's 2019 Q3 earnings report, they noted that booj had 40 clients account for nearly $7,000,000 in annual revenue. By November 1, 2019, however, they reported that only around $3,000,000 was left in the billing of legacy booj clients. By 2020, that number dropped even more significantly. This shows that within just 20 months of the RE/MAX acquisition, more than half of the clients adversely affected had already left and found new providers. As of my writing this article, I believe only nine brokerages remain on the platform that are not affiliated with RE/MAX.

To date, Delta Media Group has worked with nearly a dozen clients to migrate from booj to the DeltaNET™ all-in-one platform. This gave us an intimate look into how these brokerages were burned by a technology vendor who decided to make an exit, rather than continue to service their customers.

Let's take a look at another technology example. In February of 2019, another major tech shakeup rocked the industry. Contactually, largely considered one of the best up-and-coming CRMs for real estate, was acquired by "technology" real estate agency, Compass. For years Compass had touted that they were a technology company first, a real estate agency second. Despite these claims, they could not develop a solid in-house solution for their CRM needs, so they used some of their raised capital (more than $1.5 billion thus far) to acquire Contactually.

Contactually's acquisition caused many brokerages to re-evaluate their options. They had just seen what happened with booj and RE/MAX only one year prior, and they didn't want to get stuck on a platform with weak support. Again, many brokerages had to disrupt their normal business cycle to conduct a lengthy search for a new technology provider. These searches can be costly, both in time and in investment.

One last "technology" acquisition that I have to mention — Zillow acquiring ShowingTime in February of 2021. This is absolutely major news in the industry. We are still in the early stages of this move's ramifications, but brokerages and MLS boards are already scrambling to find replacements for the service. Something so pivotal in an agent's business — scheduling showings of a property — was instantly disrupted by the biggest name in real estate. I believe this is only the first of many technology acquisitions Zillow will make this year as they continue to drive farther and farther into the lane of becoming a traditional brokerage themselves.

These three significant events showed me, and the rest of the team at Delta Media Group®, that there was a major need for true independent technology companies in the real estate sector who could help take care of traditional brokerages. Big money in technology is disruptive to traditional real estate firms, and we wanted to be different than the rest of our competition in this space. That's why our CEO Michael Minard has repeatedly denied raising millions in venture capital dollars, so we could continue to operate as a true partner for our clients.

After all, the majority of our growth comes when our clients share our story, and their experiences using our product, with the rest of the real estate industry. Those stories don't get told unless we deliver excellent service.

There is one tell-tale sign that a merger or acquisition is on the horizon for technology firms: Raising large amounts of dollars through VC funding rounds. The investors will always expect to see three to five times their money, typically within three to five years of making their initial investment. For many tech companies, the goal after raising money is to grow at all costs so that you can conduct a successful exit for your investors. This cycle has been repeated again, and again, and again. That's why it is so critical to know who exactly it is you are trusting a significant part of your business to.

Let's shift gears away from the technology side. Mergers and acquisitions (M&A) are widespread on the real estate side as well. I wanted to share a few snippets of acquisitions that some of our clients have made over the last couple of years. It is always a pleasure to see our clients expand and grow, and I've had a front-row seat to witness the hundreds of different moving pieces that come with a major acquisition. Luckily, thanks to our automations and experience dealing with these mergers on what feels like a weekly basis, we can alleviate the technology challenges that generally come with a migration of hundreds of agents to a new technology platform.

In December 2020, one of our partners, Latter & Blum, Inc., made the blockbuster acquisition of Gardner Realtors. Latter & Blum and Gardner Realtors were No. 1 and No. 2 for market share in New Orleans. With more than 700 agents from the Gardner team, this acquisition transformed Latter & Blum into one of the largest brokerages in the country. Following acquisitions of CJ Brown Realtors, Van Eaton & Romero, and Realty Associates, Latter & Blum now boasts more than 3,700 agents and is the second-largest female-led brokerage in the country.

Another one of our partners, Coldwell Banker Bain, is also no stranger to acquisitions. They added to their impressive catalog of offices throughout the Pacific Northwest by acquiring Coldwell Banker Morris (100 brokers in Bend, Oregon) at the tail end of 2019. That acquisition marked their fourth office location in Oregon, giving them 300 brokers in that region. Coldwell Banker Bain also has more than 1,200 agents servicing the state of Washington and is the top-ranked Coldwell Banker brokerage in the nation by sales volume (more than $6.28 billion).

Finally, a long-time partner of ours, Berkshire Hathaway HomeServices Homesale Realty, completed multiple mergers in 2020. Homesale has more than 1,400 real estate agents across the states of Pennsylvania and Maryland. They are the No. 29 ranked brokerage in the United States for transaction sides—with 14,523 transactions in 2019. Homesale first acquired Preferred Properties Real Estate, Inc. out of York County, Pennsylvania. Later, in September 2020, the team at Homesale finalized a deal to acquire RE/MAX Sails out of Baltimore, Maryland. These acquisitions marked the thirtieth and thirty-first offices opened by BHHS Homesale.

These are just three examples out of nearly 40 acquisitions completed by our customers over the last 18 months. One thing is certain—there will be no slowing down. If you are a smaller brokerage thinking of retiring or making an exit out of the business, I don't think there has ever been a better time to start that conversation inside of your business. Large enterprise brokerages are looking to acquire smaller firms and do whatever possible to gain enough size to pose a threat to Zillow and prevent disruption in their business.

In my experience, one of the primary reasons why a real estate agency would move forward with acquiring another firm is typically to gain market share or to move into a new market altogether. One of the major benefits of growing your companies into new markets and expanding your company's overall footprint is that "size matters" when it relates to SEO. The more IDX data you have on your site and the more communities and neighborhoods you highlight can directly translate to an increase in your site's overall SEO value.

All three companies I mentioned as growing through acquisitions have also seen massive growth online with their lead generation strategies powered mostly by Delta Media Group's internal marketing team. Latter & Blum has seen an increase of more than 79% traffic to their site from organic (search engine) traffic. The Latter & Blum website had more than 3.5 million visitors over the course of 2020, and this increase in visibility accounted for an increase of 20% in their overall lead generation through their site. In 2020, Latter & Blum generated more than 22,000 leads on their website.

Coldwell Banker Bain saw even greater increases in visibility and lead generation. Year over year, comparing 2019 to 2020, Coldwell Banker Bain saw a 98% increase in leads generated through their website and more than a 143% increase in search engine generated traffic to their site.

Berkshire Hathaway Homesale Realty also saw continued growth online, with a 21% increase in organic traffic to their site and a 12% increase in lead generation. Homesales' website saw just shy of 4,000,000 visitors to the site throughout 2020 and had more than 48,000 leads generated for the year.

To conclude, mergers, acquisitions, and companies' overall growth in the real estate industry will not slow down. I fully expect to see a massive INCREASE in acquisitions both in the technology sector and real estate throughout 2021. If you are a small to mid-sized brokerage, there has never been a better time to talk about potentially merging with other firms in your market. However, if you are evaluating potential technology partners for your business, I would recommend doing additional due diligence and research on who your prospective tech partner's true owners really are.

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