Four years ago this summer at Inman Connect, I was at a private dinner hosted by the 1000watt agency, sitting next to Trulia founder Pete Flint. He seemed distracted, off in a zone, not quite his normal gregarious and gracious self. I had no clue he was nearing a blockbuster deal to sell his company to competitor Zillow for a staggering sum, $3.5 billion. A few days later, the deal was announced.
During that week at our CEO Connect event, I joked on stage that I smelled a big deal in the air “maybe Trulia will buy Zillow.” Again, I was clueless about the ZT marriage, but indeed the environment was ripe for a mega deal.
Just a few months later, News Corp. paid $1 billion for realtor.com and Rupert Murdoch entered the online U.S. real estate industry.
Everything was suddenly reshuffled in a big way.
We are in a similar environment now, but this time there is no question that deals are in the works and many are coming down as we speak.
Berkshire Hathaway paid an estimated $600 million to $800 million for big East Coast independent brokerage Long & Foster earlier this year, and Compass is on the move buying local brokerages, starting with Conlon Real Estate in Chicago and just this week the 400-agent Paragon Real Estate Group.
Compass initially said its strategy was to acquire agents, now it is buying companies to move faster building market share on its self-stated goal of 20 percent in the top 20 markets by 2020. I guess it could do the same thing with technology, buying tech firms to build out its promised agent platform faster.
But Zillow is the one to watch, it has been fairly explicit about its intentions.
Two weeks ago, the company announced a $650 million public offering. That and its huge stock valuation, an impressive $12.38 billion market capitalization, gives it lots of dry powder to make a slew of small deals or a big deal.
This is like a Russian diva walking into the Rodeo Drive Chanel store with a few hundred dollar bills sprouting from her open purse.
Zillow hinted at this strategy in an investor press release, saying it could “use a portion of the net proceeds to expand its current business through acquisitions of, or investments in, other businesses, products or technologies.”
The Seattle home search giant hedged on any looming deals that might be in the works.
“Zillow Group has no definitive agreements or commitments with respect to any such acquisitions or investments at this time.”
The diva has not put her signature on the Chanel credit card slip, but she has pulled the black card out of her purse.
Where might Zillow place some bets?
It could completely tie up the real estate search business by acquiring realtor.com, but that would probably bring on the ire of federal antitrust regulators. Plus, NAR could mess with that outcome as the trade group still has an operating deal with realtor.com.
More likely is a bet on the future with its iBuyer program, maybe consolidating the space by purchasing companies such as Opendoor, Offerpad or Knock.
Allegedly, Zillow talked to Opendoor early on but that conversation did not go well — like the early chats between Facebook and Twitter that ended in a slugfest.
Opendoor co-founder Keith Rabois poked at Zillow earlier this year on social media when Z announced its own iBuyer program. Rabois suggested that Zillow’s announcement was a JV move to mess with Opendoor’s funding round.
A better option might be for Zillow to acquire smaller companies trying to compete with Opendoor, though it is not clear who would provide the most value as Zillow tries to figure out this tricky business of buying homes.
It could also fill in the holes of its software suite, particularly curation of leads, which it has not yet nailed. A target would be Agentology.
Finally, Zillow’s apartments and mortgage business is an unfulfilled promise, and this is where a big deal could help the company get a stronger foothold on the messy affiliated business opportunity.
A signal in that direction may be that Greg Schwartz, formerly chief business officer, is now president of the mortgages and rentals marketplaces. He is a deal guy.
Hey and who knows, Zillow may do the unexpected and gobble up Redfin or Compass and buy the entire Chanel store.
Who else is poised to do more M&A in real estate?
Lots of companies, including a slew of private equity firms who are plowing billions of dollars into the space. Pokey old real estate is red hot.
Plus, consider well-capitalized firms like Fidelity National Financial with founder genius Bill Foley, who lives off deals and is the money behind Pacific Union Real Estate and the $240 million acquisition of Commissions Inc. and smaller software companies.
And what if Berkshire Hathaway with the Warren Buffet largess decided to shore up its technology offer to compete with the disrupters? Unlikely, buying tech companies is not in its DNA. But in the meantime, expect it to buy more brokerages.
And Keller Williams has more technology to build or buy, so an acquisition could be in the offing for the Austin-based firm that has promised to reinvent itself as a tech company.
But the biggest shopper in the store is Zillow, so the next move will probably come from Seattle.
Better hire some extra clerks at the Chanel store.