- Two big players, Realogy and Berkshire Hathaway HomeServices, are actively looking for acquisitions.
- Also in the mix with strong expansion plans are Pacific Union International and Howard Hanna.
- Active M&A players are mainly interested in big independent brokerages in cities such as Chicago, Florida, Seattle and elsewhere on the West Coast.
The market for mergers and acquisitions (M&A) in the real estate industry was very strong from mid-2013 to mid-2016 — and then it cooled off.
But after a pause, two big players, Realogy and Berkshire Hathaway HomeServices, who generally set the tempo in M&A — are back scouring the market for selected purchases.
“I think for 2017 across the country, we will have a good, but not great, year in M&A activity,” said Steve Murray, President of Real Trends Consulting, which specializes in valuation and mergers and acquisitions. The company has done over 600 valuations and 90 sales in the last five years.
“It will be good, solid business,” Murray added. “There will be 20 or 25 companies in the U.S. on everybody’s radar.”
These include well-known independent brokerages in Chicago, Dallas, Washington, D.C., Seattle and in the San Francisco Bay Area, as well as in Florida, all of which could get the main players excited if they came on the market.
How things have changed with existing investors
Realogy and Berkshire Hathaway HomeServices are now pro-actively calling Murray to see what he has in the pipeline — which has never happened before in the past 15 years, he says.
Another change in the M&A scene is that unless the target is a very big brokerage, companies on the expansion trail are only looking to acquire within their existing footprint, said Murray.
Coldwell Banker, for instance, turned down three companies that were outside the company’s existing footprint over May and June this year, and this approach is likely to continue in 2017, he said.
“I think what we will see is that they will be very active, but very selective,” said Murray.
New ‘big’ players on the horizon?
As well as the big two, there’s another quiet player in the market, which people have not been paying so much attention to — Pacific Union International, with the backing of Fidelity National Financial, its majority shareholder.
The company confirmed it is continuing to look for something substantial to buy as the opportunity lends itself to the West Coast region.
According to Pacific Union International CEO, Mark McLaughlin, “Pacific Union has been aggressively looking to acquire a top-tier brokerage with clear momentum on the West Coast. Finding a premium brand that matches our culture of teamwork, trust and innovation is our challenge and our priority.”
Meanwhile, fast-growing firm Howard Hanna has also been very busy in the past couple of years.
According to Murray, it has bought in Virginia Beach, in upstate New York and in Ann Arbor, Michigan — and is still looking for more acquisitions in Pennsylvania, the Mid-Atlantic and Michigan. From Illinois east to New Jersey and south to Virginia, Howard Hanna is a major player, said Murray.
“We have a very big appetite to continue with our acquisition strategy next year, ” said Howard W. “Hoby” Hanna, IV, president of the acquisitive company.
“In 2017, one of our goals is to identify target acquisitions within our eight-state existing footprint as well as other cities and states in both the Midwest and Mid-Atlantic regions,” he said.
“Our acquisition approach is traditionally to find independently owned brokerage firms that are Nos. 1, 2 or 3 in market share in their marketplace and are looking for affiliation or growth through synergy and strategic growth opportunities.”
The company’s primary market of focus in 2017 will be Michigan — especially the Detroit suburbs, said Hanna.
“There’s also potential for growth in Ohio and Pennsylvania, as well as the hope to expand through Southern Virginia, Northern Virginia, and into Maryland,” he added.
Shrinking margins and smaller companies
While the big players may attract the big headlines, the usual amount of M&A is likely to continue to go on among medium and small businesses, said Murray.
He predicts the argument to sell up and accept stock will become more convincing for independent brokerage owners in the next year or more as they decide to invest in other things.
“There will be an active market while the business is good and making money, but margins are shrinking — and it’s not going to get better and brokerage owners know it’s not going to,” he said.
Meanwhile, what effect will a Donald Trump government have on any movement in the market?
“If they generate 2 million to 3 million new jobs, then we are in for a great 2018 to 2019 — as long as the idiots in Washington don’t loosen mortgage regulations,” said Murray.