The headlines are everywhere: rising interest rates, increased unemployment numbers and continued inflation. The entire real estate industry is concerned, if not outright worried, about what effect the national economy will have on sellers and buyers. Many brokers are asking, “What should I do, or what can I do to prosper in these uncertain times?” Most have the proverbial “deer in the headlights” look, just waiting for whatever happens to happen. Your question should be, “Do I attempt to grow, sell or stay the course?”
The most famous investor of our time, Warren Buffett, offered sage advice that I believe applies to our industry currently. He said, “Be fearful when others are greedy. Be greedy when others are fearful.” My take on his advice is that now is an opportune time to look at expansion through M&A (mergers and acquisitions) activity. We are currently working with several smaller, and even larger, regional players that are in growth mode. They saved cash during the good times knowing they could use it in the future, and that time is now. They have little competition for sellers as the stock-exchange-owned companies have all taken a “pause” on their M&A activity.
Many potential sellers are kicking themselves for not selling in 2021, or even 2022. They are worried about how long the current market downturn will last. Some might call them fearful. The reality is that the current market downturn is still generating strong transaction velocity, just not the numbers of recent record years.
During the “Great Recession” of our lifetime, I helped my wife’s fine real estate company close on five acquisitions. All the firms were quality additions that, unfortunately, did not have the staying power to continue operating independently. They were all the “fold-in” variety that immediately added revenue, but minimal additional expenses. We both feel that these acquisitions helped the company not only survive, but emerge from the recession far more profitable and dominant in the markets she served.
No one I know is predicting a decline like we experienced in 2008 – 2010, but I feel that a similar dynamic is in play. Many brokers put little money away or are not able to reduce expenses quickly enough to maintain profitability. A lot of new brokerages originated in the last few years that may not have had the time to save, and may still be paying off startup expenses. We are working with brokers in these situations who are trying to determine their next best move. Some will be selling candidates and great additions to a receptive buyer interested in growth. M&A should be in your growth plans.
Whatever your needs are for M&A Advisory, we can help. Please contact us for a complimentary consultation.
George Slusser leads the Real Estate M&A Advisory Team at WAV Group. He has assisted in closing transactions with purchase prices totaling over $1.4 billion and performed hundreds of valuations on firms of all sizes.
