Take a look at the difference between mergers and acquisitions in the real estate industry, as explained by a real estate business and rent roll broker.
Real estate agencies and rent rolls are assets like any other businesses — they can be bought and sold as the need arises.
Generally, when an agency purchases all or part of another agency - an acquisition - the exchange is relatively straightforward. As part of this, the ‘dominant’ agency will fold the purchase into their existing brand. There will always be specific exchange terms and some complexity involved but the outcome is one business ‘absorbing’ all or some of the other.
The alternative to a straightforward acquisition is a merger, which looks quite different.
Mergers vs acquisitions
An acquisition/purchase is when one real estate agency buys all or part of another. This can include office premises, marketing collateral and/or the selling agency’s rent roll client. Staff may also be part of the transaction.
Once an acquisition is complete, the agency acquired will either downsize or cease to exist. The benefit to the purchaser is an immediate increase in rent roll, staff and other assets. The benefit to the seller is cash in the bank and the flexibility to make some new decisions.
Sometimes acquisitions take place because one company is in trouble. At other times it's because the larger company sees the potential and value in the smaller one. Consider Instagram only had 13 employees when Facebook acquired it for $1 billion… it was a big move but it paid off because Mark Zuckerberg successfully removed what proved to be a big threat to market share for Facebook.
Corporate examples of acquisitions include:
Amazon and Whole Foods (US high-end food supermarkets)
Facebook and Instagram
Sara Lee Australia and Original Food Baking Co. (New Zealand)
eBay and Paypal
There are plenty of examples of large and small scale real estate acquisitions so ask your broker for some case studies to find out how other businesses have done things.
With a merger, two agencies come together and merge staff, systems and processes. This can be more complicated because of branding and the way profits are distributed.
Corporate examples of mergers include:
Disney and Pixar
AT&T and Time Warner
Heinz and Kraft
AB InBev and SABMiller (liquor companies)
Mergers can be a significant power boost for both brands in terms of market share, exposure and client numbers. However, a merger is usually more complex than an acquisition because it involves two separate businesses coming together to form a new one. It's rare for two agencies to be balanced in terms of value and revenue so establishing the terms of the deal can take some time.
To understand more about how rent rolls affect mergers, read How the state of your rent roll affects a merger
Real estate businesses: merge or acquire?
If your agency is growing and you have big ambitions for future area dominance, acquiring smaller businesses or rent rolls may be the right strategy to help you achieve your goals.
A broker will help you identify smaller agencies or rent rolls which are in good shape and have the potential to bring benefits to your business. It’s important to take your time, do your due diligence and involve professionals including your:
Business broker
Contract lawyer
Independent valuer (preferably with specific experience)
Accountant
A merger may take place if two strong brands see an opportunity to elevate each other. In this scenario, both will have an asset they bring to the table, for example one agency may be leading the pack in terms of sales and the other may have one of the most profitable rent rolls in the area. A merger will create a ‘super power’ with outstanding potential for efficiency and profits.
One challenge with a merger is making decisions around things like rebranding; you don’t want to end up with a business name people find too much of a mouthful. There is also the issue of logos, etc; do you start from scratch or stick with one or the other? Again, having a team to help you examine the options and make win/win decisions will help all stakeholders to reach a better outcome, sooner.
There are lots of things to consider in both scenarios. Working strategically and methodically, and enlisting the help of experienced professionals will help you achieve positive results.