As large real estate brokerages like Compass and HomeServices of America have expanded aggressively through mergers and acquisitions over the past two years, Realogy, under the leadership of CEO Ryan Schneider, has refrained from the big-ticket brokerage buys spearheaded by previous chief executives.
During a first-quarter earnings call on Thursday, however, Schneider revealed why his company has been focused on organic growth — and what might prompt a strategy pivot.
“For now, you should assume we’re sticking with organic growth and our investment in the business is more around our value proposition, our technology and our data,” said Schneider, who since being tapped to lead Realogy in 2018 has shied away almost entirely from the headline-grabbing brokerage acquisitions of earlier years.
In former iterations, the companies that would become Realogy acquired brands like Coldwell Banker, Corcoran, Century 21 and others. Its most recent brokerage acquisition was Climb Real Estate, which was acquired by NRT in 2016, and, before that, ZipRealty in 2014.
Schneider said when he took the helm, he wanted to shift that focus to organic growth because he saw two things happening.
“One, was when you looked at the M&A that has been happening in our industry – and this is true for Realogy and it’s true for a few of our competitors if you look, even if they’re not public there’s a few you can see some of their numbers, there’s a lot of M&A happening that increase people’s top line but did not change people’s bottom line,” Schneider said. “That happened for us, that happens for others and is still happening for others.”
“Another thing that happened when I first got here was that the multiples for M&A before the housing market kinda went south here in the last few quarters had actually gotten much higher than historical multiples that Realogy was used to paying,” Schneider added.
Schneider’s view has begun to shift slightly, however, and he cited several reasons why Realogy could eventually pivot toward new mergers and acquisitions in the future.
“If in the tough housing market, if people’s expectations and the actual prices at which these things trade drop a lot, that’s an interesting thing,” Schneider said.
Schneider said he’s generally skeptical about buying other brokerages for their revenue, whether it’s his own company’s experience or what he’s seen with some competitors.
“But there could be a model that could be more interesting, especially if the multiples are different where it’s not about the revenue side, but it’s about the cost takeout side,” Schneider said. “In that scenario, it’s not expanding into new geographies through acquisition, it’s what are companies where you have a 100 percent overlap on your footprint with and if the economics align, and the price aligns could you do it more for a cost takeout reason.”
He added that the company doesn’t have anything to announce and there are no deals currently in the works. He did acknowledge, however, that acquisitions are higher on his radar than in the recent past.
An acquisition to reduce overall costs would follow thematically with the aggressive goals to cut costs that Realogy has set for the year. The company is aiming for a full-year cost savings of $70 million, according to the earnings call, while also reducing commission costs through a more aspirational system it’s been testing nationwide. The company has also explored reducing its office size footprint and other strategies.
“I do see opportunities to drive additional efficiencies this year and also for future years to come,” Realogy Chief Financial Officer Charlotte Simonelli said during the call. “I do feel very good about the $70 million that’s already there, and I’m definitely optimistic that there’s more that we’re going to deliver this year.”