I was honored last week to speak at the WomanUp! Conference in San Diego. If you are not familiar WomanUp! it is an initiative started three years ago by the California Association of Realtors as a networking opportunity for female leaders. It has grown into a national movement and this year’s conference marked the third and largest yet. It was an amazing event for so many reasons but more on that in a later blog. I was asked to speak to the group on growing your brokerage through mergers and acquisitions. Over the course of my career I’ve been involved in many mergers and acquisitions. Sometimes representing the buyers and sometimes the seller. Here are a few things I’ve learned.
If you are the seller:
- Stage your business to sell. Take a page out of our home selling playbook. The same advice we give home sellers to declutter and improve curb applies to your business. Spend time well in advance getting your business in top shape to sell.
- Get your profit and loss statements and your balance sheet in order. Have the last three years completed and ready to share with a potential buyer. Detail separately any ownership expenses that you ran through the business that wouldn’t be applicable to the new owner. These will be considered add backs when determining your price. Things like business travel, auto expenses and any other ownerships benefits you’ve had as the owner.
- Also have your business scorecard ready. Important key performance indicators (KPI’s) like number of transactions, split between buy side and sell side, production per person, new hires, terminations, company dollar per transaction, etc. are valuable negotiating information. See my KPI cheat sheet for reference.
- Limit the long term obligations. If you are thinking of selling in 2-3 years start now limiting your long term leases and commitments. Don’t enter into 5 year office leases that a new owner will have to assume in 2 years, it will decrease your value potentially. Same with technology vendors. That CRM vendor may give you a great deal for a 3 or 5 year contract but that could hurt your negotiating power when selling and the buyer has their own vendor or system they use.
- Your assets are your agents. Purchasing a real estate company is unique in that the value (being the agents production) can quickly walk away and the buyer is left with a huge problem. You as the seller will be the lynchpin in retention during the transaction. Build your relationships.
If you are the buyer:
- Culture is the single most important determinant of success when bringing together two groups of people. You need to really examine if there is a cultural fit between the company you are buying and your own. If there is not, there will be costly problems ahead.
- Look at the expenses closely. Where can you leverage or eliminate costs by merging the two operations together.
- Take staff into consideration. Both your existing staff and any potential new staff that may come along with the acquisition.
- Study the production of all the agents in the company you are acquiring. Do your own research. Pull the MLS reports, Broker Metrics, look at their social accounts and anything else to learn about them. Don’t take at face value the representations made by the seller.
- Be fair and reasonable. This is an emotional transaction for the seller. It will require a delicate balance and often a third party can be very helpful when facilitating the transaction.
2020 is fast approaching. Is this the year you make mergers and acquisitions part of your growth strategy? The market is changing and there are lots of opportunities out there.
Action items after reading this blog:
- If you are a seller, start working on the points above.
- If you are a buyer, start identifying potential M&A targets in your market or in the market you want to expand into. If you need a script for contacting potential prospects let me know.