At the end of May, a group of around 400 agents gathered at the Mile High Station, an attractive Denver party venue, as privately held franchisor HomeSmart International announced the acquisition of Denver-based Cherry Creek Properties. It marked the culmination of a relationship between the two founders that had been several years in the making.
Both sides did their homework to uncover a number of parallels between the two companies: a 100-percent commission model, a dedication to their agents and mutually beneficial timing. Dino Sarganis, who founded Cherry Creek in 2006, is expected to stay on for the rest of the year before retiring, while the deal made HomeSmart no. 1 in Colorado by agent count, adding to its base of 600 before the acquisition for a total of more than 2,100 associates in a state where real estate is booming.
With a solid foundation for the acquisition, HomeSmart also navigated the merger execution wisely by making the transition easy to digest for its new agents — a “zero-cost” move for them. Buying a company with 1,500-plus agents and merging it with an existing operation is no mean feat. Two months after the announcement, here’s how HomeSmart and Cherry Creek have settled in.
‘We came up much the same way:’ How the conversation started
Cherry Creek Properties’ owner Sarganis was first approached by HomeSmart founder and CEO Matt Widdows about four years ago. Widdows stopped by to introduce himself, and the two hit it off.
As Sarganis said, “We came up much the same way” — via a 100-percent commission business model. Widdows asked about the company owner’s exit strategy and suggested that when it came time to sell, they might put a deal together.
“We didn’t talk a whole lot until about a year ago [when we] started discussing the idea of an acquisition and how it might work,” said Widdows.
HomeSmart wasn’t the only company Sarganis spoke to. The broker-owner did his homework; he talked to four or five other well-known real estate brands, but he felt he made the best decision for his agents selling to Widdows. He wanted someone who would “take care of his agents.” These were agents who had supported him for more than 10 years, after all, he said.
“Matt surrounds himself with very capable people — that’s what smart people do, they surround themselves with people who are smarter than them; that’s why they are successful,” Sarganis said.
Sarganis and Widdows are both strong believers in the 100-percent commission model as being the future of real estate, despite the dissenters who say that these brokerages can’t afford to give their agents proper support, which is not the case at HomeSmart nor was it at Cherry Creek, the founders agree.
Their aligning business models have played a big role in the success of the acquisition.
“We have some key indicators that we look at when identifying companies to acquire. Much of it is driven by market opportunity, company size, similarities in model and fee structure,” Widdows said.
But to bring a big acquisition such as Cherry Creek to fruition, there had to be an affinity and trust present, too.
“Then it just comes down to the ownership and the personal relationship side of it. If there isn’t trust and a good feeling for both sides, the deal will never work, in my opinion,” he explained. “You don’t really know if it’s going to work until you at least start that dialogue.”
Widdows tends to concentrate on brokerages with the 100-percent commission model when looking for possible acquisitions.
“It’s tough to make numbers work for HomeSmart to acquire a traditional company, just as it is tough for a traditional company to acquire a 100 percent company,” he said.
(HomeSmart doesn’t do acquisitions in locations where they already have franchisees. If there is an acquisition opportunity where there is currently a franchisee, then HomeSmart partners the opportunity with the franchisee.)
Streamlining a big purchase
The entire HomeSmart senior leadership team was present to introduce Cherry Creek’s agents and staff to HomeSmart’s marketing, training, human resource and career services on the day of the acquisition announcement.
The next day, HomeSmart had staff on hand to help agents with paperwork, signs and anything they needed. For the occasion, Bowers had 2,100 sets of business cards made up and 1,000 yard signs for their newly acquired Colorado agents. In the weeks that followed, help was available at HomeSmart’s Colorado corporate office to facilitate the transition.
The priority was for the transition to be as painless as possible for the Cherry Creek agents.
“We were trying to make it a zero-dollar expense for them to make the decision to stay — that was really our goal,” Bowers added.
Both Bowers and Widdows are honest about the fact that the acquisition took a lot of manpower and hard work.
“We definitely got stretched during this acquisition, and if it weren’t for the incredible people here we would never have been able to pull it off as smoothly as we did,” Widdows said. “That’s not to say there weren’t challenges, but change is tough for many agents to accept, even if it is ultimately positive change.”
Working through that and having staff act as a unified “calming voice” through the transition was huge, he said.
“And doing that when you are stressed and overwhelmed with volume is an even bigger feat.”
Added Bowers: “When doing an acquisition you can easily take your eye off the ball. In the second quarter, with all of May and June, the focus was on the acquisition, yet all of our corporate companies hit their targets. It’s good to see they could maintain focus while chaos was going on. I think that by the skin of our teeth our numbers were what we expected.”
The combined national performance for HomeSmart, its franchises and Cherry Creek Properties in 2016 was $14.68 billion in closed sales volume and 53,888 in closed transactions.
Nationwide, HomeSmart now has 127 office locations, with 42 of those being corporate-owned brokerages and the other 85 privately owned by franchisees.
According to Widdows, who says the company is on track for 50-percent growth this year, there is more activity to come.
“We want to grow to more than 16,000 agents before the end of the year,” he said. The total agent count is at close to 13,600 agents right now.
Bowers says it is likely there will be two more acquisitions this year, and the next one is imminent. “We definitely want to move to the eastern side of the country — to the Carolinas, Georgia, Tennessee and the Midwest, places like Minnesota,” she said.