Given last year’s market conditions, some commentators say the M&A market is quiet, making it nearly impossible to close large deals.We were honored to represent the owners DPP Pasadena, California, and austin real estate In trading in Austin/San Antonio compass needle In the last few weeks. With these two announcements, it’s clear that more great combinations are possible.
In both cases, the client and Compass had to design new ways to structure the transaction to achieve a favorable outcome for all parties. For example, Compass doesn’t reveal any confidential information, but it uses most of its own stock rather than cash to provide value to sellers. Earn-out terms will continue to be primarily based on some indicator of future performance, but in both cases there will be brand-new features that give clients significant incentives to stay involved for several years, if not longer. there was.
Indeed, there has been no change in securities companies’ expectations regarding the EBITDA multiple, which is the basis of valuation. As a matter of fact, in all of the deals that we’ve worked on since July 2022, the absolute value of EBITDA is not what it was in the 2020 and 2021 calendar years. In either case, the seller has a real chance of increasing the profit on the final purchase price. the future performance of Compass’ stock value and its own performance based on earn-outs;
The important point here is that as long as both parties are clear on the goal of a successful integration of interests, a great outcome remains possible. While it is true that overall valuations are lower compared to 2020-2021, this is primarily due to lower profitability of brokerage and related services. The next two to four years are likely to be better than the last 12 months in terms of future earn-out returns, so it’s the best time to structure a deal. Therefore, your chances of receiving most or all of the proceeds are higher than if you were to sell into a market poised to fall further.
While these two transactions are among the largest we’ve worked on this year, most of our work combines business between local companies. This remains the most active part of the market. For medium to large brokerage firms, this is a great opportunity to reach out to determine which other firms in the market might be amenable to some form of combination.
Steve Murray is a partner at RTC Consulting and a senior advisor to HousingWire.
This column does not necessarily reflect the opinion of HousingWire Editorial Department or its owners.
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steve murray [email protected]
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tracy belt [email protected]
