Mergers, Acquisitions, and Roll-Ins               Growth on a geometric scale
Why?• Grow geometrically• Grow productivity• Grow selectively
What we’ll cover today:• What’s the difference  between a Merger, an  Acquisition and a Roll-In?• How do you value a Merge...
Definitions• Merger: Union of two or  more real estate firms using  each firm’s value and/or  cash to determine equity in ...
Approaches to Valuing a Real               Estate Brokerage• Market Approach. The market approach to valuation derives  bu...
Value of a Merger or Acquisition?
Real Estate Brokerage Valuation• EBITDA  – Earnings Before Interest Tax    Depreciation and Amortization  – Earnings: in r...
Real Estate Brokerage Valuation• What is “Goodwill”?   – Any amount paid over “book value”      • Listings, value of curre...
Income Statement Exercise• Carl Jones is seriously considering selling his 15 year old real estate  brokerage with 22 agen...
Today’s MarketWe’re not in Kansas anymore…
Prospecting in Today’s Market• Do the research   –   List the targets   –   MLS stats: trend analysis   –   Company websit...
M&A in Today’s Marketplace• Why?   – Be very clear in your     objectives.   – Be able to articulate your     objectives t...
M&A in Today’s Marketplace• Confidentiality   – Trust but verify   – Pore over details   – Focus on culture• Build a Relat...
M&A/Roll-Ins in the Nextage “We” World• “Trade your overhead for  overrides.”   – The Team Building mystique   – Is holdin...
M&A/Roll-Ins in the Nextage “We” World• Final thoughts:   – The pendulum swings both     ways      • Keep an open mind to ...
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Mergers, acquisitions, and roll ins 012012

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How to acquire/merge/roll-in competitor real estate firms.

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Mergers, acquisitions, and roll ins 012012

  1. 1. Mergers, Acquisitions, and Roll-Ins Growth on a geometric scale
  2. 2. Why?• Grow geometrically• Grow productivity• Grow selectively
  3. 3. What we’ll cover today:• What’s the difference between a Merger, an Acquisition and a Roll-In?• How do you value a Merger or Acquisition Target?• Where we are today• What does this mean to a Nextage franchisee?• Q&A
  4. 4. Definitions• Merger: Union of two or more real estate firms using each firm’s value and/or cash to determine equity in the merged product.• Acquisition: Buy-out of typically smaller competitor for strategic reasons.• Roll-Ins: Broker or agent led group of agents “walk-over” to a competitor.
  5. 5. Approaches to Valuing a Real Estate Brokerage• Market Approach. The market approach to valuation derives business value in comparison to historic sales, earnings, and/or assets of other similar businesses.• Asset Approach. The asset approach to valuation determines the value of a business by assessing the fair market value of its assets.• Income Approach. The income approach to valuation, which is most commonly used for valuing brokerages, establishes value by evaluating a business’s ability to generate economic benefit for the owner. – Apply the right multiplier factor to earnings and then add value (if appropriate) for the business’s assets.
  6. 6. Value of a Merger or Acquisition?
  7. 7. Real Estate Brokerage Valuation• EBITDA – Earnings Before Interest Tax Depreciation and Amortization – Earnings: in real estate brokerage maybe yes, maybe no! – In a real estate brokerage, what are Profits? – “Before” ITDA – Where do you look for EBITDA? • Balance Statement • Tax Returns • P&L • Income Statement
  8. 8. Real Estate Brokerage Valuation• What is “Goodwill”? – Any amount paid over “book value” • Listings, value of current agent productivity, reputation of firm, tenure in business, leadership and organization, market share, cost to recreate• What is a “multiple”? – Factor derived from the Net Present Value of the cash flow – Discounted cash flow• What is an “earnout”? – Most brokerages sold do not derive all cash settlements • Earnouts typically provide for opportunity to increase overall sales proceeds depending upon performance post-sale.• What is “an asset sale”?
  9. 9. Income Statement Exercise• Carl Jones is seriously considering selling his 15 year old real estate brokerage with 22 agents. He has consented to “confidentially” permit you to review his financial statements, i.e., Income Statement, in order for you to determine an offer price. – Carl wishes to remain in a management capacity after the sale. – Carl owns all his office FF&E outright and will convey at an appraised value of $7,000.00 – Carl’s office lease expires in three months. – Carl has heard from colleagues that he should expect to sell for a multiple of 3 times his EBITDA. – Average agent commission split is 78%• Using Carl’s Income Statement (handout) – Normalize the Income Statement to better express your Business Plan for the purchase and compute an offer price for Carl. – Assume an economy of scale based on 40 agents total.
  10. 10. Today’s MarketWe’re not in Kansas anymore…
  11. 11. Prospecting in Today’s Market• Do the research – List the targets – MLS stats: trend analysis – Company website – Social Media – Talk to vendors• Make the call – “I’d love to get together to see if there’s any type of strategic business relationship that makes sense.”• Follow up, follow up, follow up!
  12. 12. M&A in Today’s Marketplace• Why? – Be very clear in your objectives. – Be able to articulate your objectives to the prospective seller. – What’s your plan?• Caution EGO Ahead! – Don’t overlook “family” – Intangible value?• What is the Target’s “identity”? – Market – Culture What is “breakage”? – Operating systems
  13. 13. M&A in Today’s Marketplace• Confidentiality – Trust but verify – Pore over details – Focus on culture• Build a Relationship with the Target Broker and Stakeholders – Stakeholders include spouses, partners, key personnel – Walk don’t run Successful M&A is a process, not an event!
  14. 14. M&A/Roll-Ins in the Nextage “We” World• “Trade your overhead for overrides.” – The Team Building mystique – Is holding on a financial reality? • Can you survive in the “New Normal”? – What’s the commitment level? • Financial and psychological – Can I provide my sales associates what they need? • Tools to compete? • Lead generation? • Office systems • Brand building
  15. 15. M&A/Roll-Ins in the Nextage “We” World• Final thoughts: – The pendulum swings both ways • Keep an open mind to the possibilities – A good poker player • Starts with a bankroll • Knows when to hold and fold • When to bluff…or not! • Knows when to go All-In
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