Despite the fact that merger and acquisition activity is largely muted at a macro level, local M&A activity is high in residential brokerage.
The housing market’s ebbs and flows are as predictable as the sun rising in east. No matter where we are in these undulations there will always be room for M&A. Although multiples and cash flow may be lower in weaker markets, this is not a good combination for valuations. However, sellers and buyers can still find each other.
Necessity vs. Opportunity
Today’s sellers aren’t as opportunistic as those in stronger markets. They’re more likely to be owners who have to make a move due to necessity. There may be a health problem, a partner dispute, retirement, or the owner isn’t strong enough to endure another downturn.
This could be an indication that a firm is in financial trouble, or that the owner wants to return to listing and selling, and would prefer to have the brokerage run by someone else.
Most small brokerage firms have owners that continue to produce. In weaker markets, these types of firms are prime candidates for brokers who are looking for acquisition growth in their local markets.
The other side of this coin is that buyers are always looking, regardless of market conditions. They are more cautious in down markets, because their firms are likely to also be feeling some pain.
Gaining marketshare in today’s market
They aren’t letting their competitors down, but they are embracing Warren Buffet’s mantra of “being afraid when others are greedy and greedy when other people are fearful,” in order to take advantage of weaker markets to improve their long-term prospects.
RTC Consulting has been encouraging our growth-minded clients since the middle last year to get ready for great opportunities. Many small businesses in their markets are currently and likely to be in serious financial trouble due to the downturn. Some may be open to looking for a new home for their agents because of this.
Some of these firms may not be in a good enough financial position to offer minimal financial consideration. However, most buyers will still need to pay. There will always be value as long as there are agents who are producing.
Fortunately, valuation is not difficult in our industry, particularly for smaller firms.
Our popular e-book “Valuing Small to Medium-Sized Brokerage Companies” was recently updated. This book can be used by potential buyers or sellers as a guide for determining what you are worth or what you should pay.
Get your e-book now, absolutely free, from our website.
Our industry’s best-known firms have benefited from growth opportunities in weaker markets to get to where they are today.
RealTrends DealMakers conference and Gathering of Eagles conference are two great ways to see how these companies did it. Panels will be held on “How to Develop M&A Candidates” as well as “Local M&A As a Means of Growth”.
This spectacular event will be held in Austin, Texas.