Scaling your business is a vital component of fiscal vibrancy. The operating leverage created in your business, and its profit and loss (P&L) statement, at scale, is financially rewarding. One path to scaling your business is certainly Mergers & Acquisitions (M&A). This is a story about getting to scale and fiscal vibrancy through M&A.
Shortly after merging Pacific Union International (PUI) and Morgan Lane in August 2009, I received a call from Ron Peltier, chairman of HomeServices of America, parent company of Berkshire Hathaway HomeServices. At the time, I knew of Ron and his stellar reputation and industry stature, but we had never spoken before. While I was surprised he found me, the conversation had a lasting impression on our business strategy.
Paraphrasing 14 years later, the message from Ron went something like this: “You know, Mark, we were in the backup position behind you to buy Pacific Union. This is a tough business you are now in, and if you are ever ready to sell, please let me know.”
This was not a comforting call to get almost three weeks into our acquisition, and left me wondering why a seller would pick us over Berkshire Hathaway. Lots of thoughts and fears ran through my mind.
Ron then made a lasting statement to me: “Mark, these businesses really don’t make any sense until you get to 4,000 transactions per year.”
I’m proud that I did not react to the statement at that moment. Back then, we were only 2,000 units. But that statement shaped our growth strategies and our success.
In June 2012, PUI closed 360 units; this multiplied by 12 equaled 4,000-plus units. When I looked at our P&L, it was alive. We were on our way to being a fiscally vibrant business. Four thousand units also seems to be the inflection point where ancillary services (e.g., mortgage, title, escrow and insurance) became very profitable.
When we decided to expand from Northern California to Southern California, we did so by M&A to achieve 4,000 units in year one. We acquired the No. 4, No. 5 and No. 11 marketshare firms, and their respective escrow operations, to create the No. 2 marketshare firm in Los Angeles County and the largest independent in the state of California at 10,000 units and $14 billion in sales volume in 2018. After optimizing the business and benefiting from the economic synergies, we had a fiscally vibrant business in the North and South of California.
According to 2022 industry rankings, less than 240 firms in the U.S. closed over 4,000 units last year. We anticipate a robust year in M&A activity as consolidation of small regional firms creates larger organizations in pursuit of marketshare and fiscal vibrancy.
The M&A path to growth is exciting for the buyer, the seller and the real estate professionals. The power of the brand, at scale, creates consumer confidence, encourages collaboration of the best practices of each firm, and the momentum achieved drives marketshare.
M&A is an exciting opportunity for all involved. Give us a call. The difference is experience.
For more information, visit https://www.WAVGroup.com.
Mark A. McLaughlin, president of McLaughlin Ventures III, acquired Pacific Union in 2009. In 2018, Compass acquired PUI at $14 billion in sales volume, where McLaughlin served as chief real estate strategist. Today, McLaughlin serves as a consultant focused on strategic planning, CEO advisory and mergers and acquisitions.