- You should always have your company ready for sale and aim for a diversified revenue stream to attract the best value.
SAN FRANCISCO — Selling your real estate brokerage can be an emotional process akin to sending your kid off to college.
John Aaroe, CEO of the John Aaroe Group, and Partners Trust CEO Nick Segal — who both merged with San Francisco-based indie giant Pacific Union — have both been on this emotional ride recently. (The Partners Trust-Pacific Union merger was formally announced yesterday.)
“How does it feel?” asked Inman Publisher Brad Inman at an Inman Connect Session.
“It is emotional,” said Aaroe. “We talk about the numbers, the structure of the deal, the value proposition, but we don’t talk about the emotional side.
“But it’s your life’s work, you have an emotional attachment to it, and there’s an element of thinking that no one can do it as well as you. But you’ve got to step back, abide by the 24-hour rule and sleep on it.”
Their advice on preparing a company for sale? Know what you are willing to give up, and stay true your reason for doing the deal, said Segal.
“Just keep the light shining through, and make sure everyone understands why you are coming together,” he said.
A diversified revenue stream is key
The advice from Better Homes & Gardens Real Estate CEO Sherry Chris, who acquires brokerages on a regular basis, is that you should always have your company ready for sale.
And today’s most highly valued real estate companies will have a diversified revenue stream, she said.
Real estate brokerages of interest should be getting revenue from commission sales, relocation and lead generation as well as revenue from other divisions such as mortgage, title and insurance.
“When a buyer looks at your company, they are going to value that revenue stream,” she said.
How did Redfin’s Glenn Kelman manage to create such a high value for his business?
“With Glenn’s model, the majority of his revenue is coming from sophisticated lead generation. That’s valuable; I suggest everyone figure that out,” Chris said.
Agents are not necessarily providing a stable revenue unless you know there isn’t going to be any “breakage,” she added bluntly — in other words, having agents jet after the deal.
Make the first 90-days a smooth transition for agents
In talking with Aaroe and Segal before the session, Chris asked them if they had had any problems with agent retention in the process. Company owners have to work hard to keep their agents onboard and be positive about the change that comes with a company merger or acquisition, which can be hard if they have to give up their company name, she said.
“With two companies (coming together) and one group losing its identity, that’s tough,” she said. “It’s about executing flawlessly, identifying risks and making sure you overcome those objections.”
Her advice to companies going through the transition is to urge agents to stay for the first 90 days and see how it goes.
“In that crucial first 90-day period, the agent needs to feel the same or better,” she said.
Aaroe said it was the CEO’s responsibility to find a culture that was closest to their own when looking for a merger partner.
“Find people that you want to have dinner with for the next five years, and talk about branding with for the next five years,” he said.
Transparency is imperative with your agents as you are going through the sale process, Segal added.
“Rumors started to get out (on the Partners Trust merger with Pacific Union), and it was about having the ability to get out in front of that and say to agents: ‘We honor you all; you are our clients. If we are going to do this, we are doing it for your benefit.’ It was about having the collateral trust from agents at Partners Trust, that they were willing to trust us.”
You as the company owner have to put yourself in your agents’ shoes, Aaroe added.
“The first thing the agent is going to say is: ‘What’s in it for me?'” he said.
Aaroe explained to his agents that he saw a company with a better tool chest and resources and a very similar culture.
Segal concluded: “Part of our decision-making process, was that this partner was going to help us keep doing what we were doing well, so let’s help expand Pacific Union in South California, and we’ll have more of the good stuff and the tools and resources they can provide.”
He reassured his agents that what had made the company what it was, was staying with them.