The September announcement that Compass was moving to acquire Anywhere almost immediately set the industry on high alert for the possibility of another wave of consolidation.
But for Compass, at least, the landmark agreement to acquire its biggest brokerage rival is going to put smaller M&A deals on the backburner for now.
“Given the pending merger, we’re going to hit a pause on incremental tuck-in M&A as we shift our focus on executing the integration flawlessly,” CEO Robert Reffkin told investors and analysts earlier this month.
Across the rest of the brokerage world, Intel combed through third-quarter financial filings, earnings call transcripts and its own survey data for clues on how decision-makers from the biggest players down to the smallest indies are positioning themselves for this major consolidation moment.
Read the preliminary takeaways in this week’s report.
Close to the vest
Compass may be tapping the brakes on smaller M&A deals to focus on the Anywhere acquisition, but other brokerages are playing things a bit closer to the vest.
Large brokerages largely passed up the opportunity to comment on whether the earth-shaking acquisition would impact their own M&A plans.
Some, however, said they would be keeping an eye out for dissatisfied Anywhere or Compass agents who might be willing to jump ship. For example, the industry’s fastest-growing company by agent count, the Real Brokerage, expects the news to help with recruitment — but not fundamentally alter its growth trajectory.
“I think that once that transaction closes, we will likely see a little bit more interest from people who are kind of searching for a new path,” chairman and CEO Tamir Poleg said on Real’s recent earnings call. “We’re not counting on that. We’re counting on our organic growth and our ability to attract agents based on our value proposition.”
And Erik Carlson, CEO of REMAX, said the benefits to his firm would be primarily in recruitment as well.
Most of the largest real estate brokerages that report financials did not go into detail about how the merger will affect their business or strategy, according to an Intel review of financial filings and earnings calls.
Other major brokerage entities — such as Keller Williams and Berkshire Hathaway HomeServices — aren’t publicly traded at all.
But just because the biggest companies are not talking publicly doesn’t mean agents and brokerage leaders aren’t keeping an eye out for deals in the months ahead.
Serious talks, or discussion point?
Recent surveys by Intel suggest that M&A buzz in the short- and medium-terms has gotten louder in recent weeks.
- The share of brokerage leader respondents to the Intel Index survey who said their company was involved in serious M&A discussions rose from 14 percent in August to 31 percent in October.
- Brokerage leader respondents who said they expected their company to be involved in serious M&A discussions in a year’s time jumped from 21 percent to 34 percent over the same period.
That said, it’s hard to separate this from the fact that many Intel survey respondents are with Compass or Anywhere, and may be referring to the same single merger event between those two companies.
- Private indie brokers — the only group without a direct stake in the Compass-Anywhere deal — saw serious M&A discussions and expectations go virtually unchanged from August to October.
In other words, while M&A might be on the tip of the industry’s tongue these days, it may be premature to say a second wave is building in response to the announcement of the Compass-Anywhere deal.
Consolidation and alignment
The company to weigh in most emphatically on the Compass-Anywhere deal this earnings season was not a brokerage at all.
“I believe that Zillow’s actions pushed Compass into defensively merging with Anywhere,” CoStar CEO Andy Florance said in October on his company’s earnings call. “I’m pretty sure that Zillow just picked a fight it cannot win. Compass will have the most important listing content in real estate, and Zillow will need them a lot more than Compass needs Zillow.”
For their part, Zillow Group executives dismissed the idea that the merger would negatively impact their business. CEO Jeremy Wacksman did, however, acknowledge that the deal would contribute to “more noise around hidden listings,” which he argued would harm consumers.
It was unclear what effect Florance believes the merger and Compass’ combative stance toward Zillow will have on Homes.com, his company’s residential search portal competitor. Like Zillow, Homes.com depends on data agreements with MLSs to populate its search portal with fresh real estate listings.
But Florance’s continued efforts to cast Compass in a positive light as it positions itself in opposition to Zillow remains a dynamic to watch in the months ahead.
