Part 2: Choosing the Right Deal
Success and company growth go hand-in-hand. Every successful brokerage owner wants to grow their business. Merging with or acquiring a competing brokerage in your marketplace is one of the fastest ways to accelerate growth.
In Part 1: Identifying the Right Market, the first of the three-part merger and acquisition blog series, I determined the several factors which can indicate whether or not a market area is ripe for your company growth. In this second part, I will guide you through the considerations you must make when identifying the right company at the right price to acquire or merge with in the marketplace.
It’s not about choosing to move forward with a deal, it’s about choosing the right deal.
Once brokers decide growing by merger or acquisition is a great path, many get stumped on what comes next. There are obviously a lot of factors that go into choosing the right company to merge with or acquire, but these three factors are amongst the most important to consider.
1. Agent Count
At this point in the game, you should have well-established growth goals for your own company. You need to know your own goals for growth before you start approaching companies for possible acquisition. Why? Because you need to clearly understand your internal bandwidth and how you will properly onboard and support the agents in your newly acquired company. In a real estate brokerage, agents are your assets and it’s important you can show ongoing value past the purchase. For instance, if your goal is to grow by 100 agents in the calendar year, yet you can only support 75 more agents with your existing infrastructure, then you want to keep your acquisition prospect list at companies with <75 agents, unless you plan to beef up your internal support structure. Agent count is also important, because in many cases, companies are valued based in part on agent count.
Regardless of whether you operate a traditional or transaction-based model, agent productivity is crucial to determining whether a company is worth your investment (financial, time and emotional). Determining a rolling three years of both closed transaction sides and sales volume, is vital to knowing the history and current trending of a brokerage you’re interested in merging with or acquiring. Going after a company that peaked three years ago and has had a rough two year stint, may not be the best investment for your company when it comes to meeting immediate growth goals. Conversely, brokerages that are on the rise with high production numbers can be more expensive to acquire. So, it’s important to know your numbers prior to entering into a conversation.
An often overlooked area of research, when it comes to mergers/acquisitions, is company culture. Many people think it’s as simple as making sure the numbers align, but that alone is a recipe for disaster. Company culture is key. And, it’s not about the words on the wall or how culture is “talked about” inside a company. You’ve got to dig deep and know how culture plays out in the day-to-day operations of a company at the leadership, staff and agent levels. Now, if company cultures aren’t perfectly congruent that’s okay. What’s important is that you think through a plan of action for how to combine cultures and what the possible outcome will be. When Alaska Airlines acquired Virgin America, the two companies had differing cultures. So, to ensure a successful outcome, Alaska Airlines created a thoughtful and strategic plan for merging cultures, to ensure a smooth transition for employees, and ultimately, for customers.
Beyond these initial steps in selecting the right deal for your brokerage, you must also think about what kind of model a prospective company operates and if they are under an existing franchise agreement (something you want to stay away from to avoid tortious interference).
Now that you’re armed with the numbers and considerations you must take into account in order to choose the right deal for your company, you’re ready for the next steps of diving into an acquisition opportunity.
Stay tuned for Part 3 of the series about model adoption. If you have questions or are interested in uncovering data about your market, feel free to contact me directly at email@example.com.