M&A trend hits real estate industry

by John Tenpenny19 Oct 2015
Mergers and acquisitions are becoming more commonplace in the real estate industry as brokerages look to grow in today’s challenging marketplace – it’s a trend that is only going to escalate, says one broker/owner.

“In the next 10-15 years we’re going to see a lot of mergers and acquisitions happening,” said Shami Sandhu, broker/owner of Re/Max River City in Edmonton.

Re/Max Real Estate Beaumont was merged with Sandhu’s office recently in addition to acquiring another brokerage two years ago.

There are several reasons for the M&A trend in the industry, says Sandhu, one of which has to do with demographics.

“We’re going to see more of this because many broker/owners are approaching retirement age,” he says, adding that this was case in his brokerage’s latest merger.

Acquiring another office also makes sense for successful brokerages from a business perspective because “it makes more sense to buy an existing office with existing realtors than it does to start an office from scratch.”

He adds, even though it was not the case in his recent merger, that if you have the opportunity to purchase an office that is facing some challenges, it’s still better than starting an office that you have to subsidize one hundred per cent on day one.

Another reason for mergers and acquisitions is that in certain markets there is no room for franchises to add offices.

“They aren’t giving out new franchises,” says Sandhu, pointing out, for example, that Re/Max has 43 per cent of the market share in Edmonton.

“I can’t go to Re/Max and ask to open another office because Edmonton is already a mature market.”

There has also been a huge shift in the way mergers and acquisitions have been managed. “Historically, real estate brokerages were sold like cattle: a set price per real estate agent in the office, regardless if it was making money or not,” says Sandhu.

Now real estate brokerages are being evaluated like any other business, he says, where the price is based on how much money the brokerage is making and incorporating a multiplier.

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