How to acquire/merge/roll-in competitor real estate firms.

1. Mergers, Acquisitions, and Roll-Ins
Growth on a geometric scale

2. Why?
• Grow geometrically
• Grow productivity
• Grow selectively

3. What we’ll cover today:
• What’s the difference
between a Merger, an
Acquisition and a Roll-In?
• How do you value a Merger
or Acquisition Target?
• Where we are today
• What does this mean to a
Nextage franchisee?
• Q&A

4. Definitions
• Merger: Union of two or
more real estate firms using
each firm’s value and/or
cash to determine equity in
the merged product.
• Acquisition: Buy-out of
typically smaller competitor
for strategic reasons.
• Roll-Ins: Broker or agent led
group of agents “walk-over”
to a competitor.

5. Approaches to Valuing a Real
Estate Brokerage
• Market Approach. The market approach to valuation derives
business value in comparison to historic sales, earnings,
and/or assets of other similar businesses.
• Asset Approach. The asset approach to valuation
determines the value of a business by assessing the fair
market value of its assets.
• Income Approach. The income approach to valuation, which
is most commonly used for valuing brokerages, establishes
value by evaluating a business’s ability to generate
economic benefit for the owner.
– Apply the right multiplier factor to earnings and then add value (if
appropriate) for the business’s assets.

6. Value of a Merger or Acquisition?

7. Real Estate Brokerage Valuation
• EBITDA
– Earnings Before Interest Tax
Depreciation and Amortization
– Earnings: in real estate brokerage
maybe yes, maybe no!
– In a real estate brokerage, what are
Profits?
– “Before” ITDA
– Where do you look for EBITDA?
• Balance Statement
• Tax Returns
• P&L
• Income Statement

8. Real Estate Brokerage Valuation
• What is “Goodwill”?
– Any amount paid over “book value”
• Listings, value of current agent productivity, reputation of firm, tenure in
business, leadership and organization, market share, cost to recreate
• What is a “multiple”?
– Factor derived from the Net Present Value of the cash flow
– Discounted cash flow
• What is an “earnout”?
– Most brokerages sold do not derive all cash settlements
• Earnouts typically provide for opportunity to increase overall sales
proceeds depending upon performance post-sale.
• What is “an asset sale”?

9. Income Statement Exercise
• Carl Jones is seriously considering selling his 15 year old real estate
brokerage with 22 agents. He has consented to “confidentially” permit
you to review his financial statements, i.e., Income Statement, in order
for you to determine an offer price.
– Carl wishes to remain in a management capacity after the sale.
– Carl owns all his office FF&E outright and will convey at an appraised value
of $7,000.00
– Carl’s office lease expires in three months.
– Carl has heard from colleagues that he should expect to sell for a multiple of
3 times his EBITDA.
– Average agent commission split is 78%
• Using Carl’s Income Statement (handout)
– Normalize the Income Statement to better express your Business Plan for
the purchase and compute an offer price for Carl.
– Assume an economy of scale based on 40 agents total.

10. Today’s Market
We’re not in Kansas anymore…

11. Prospecting in Today’s Market
• Do the research
– List the targets
– MLS stats: trend analysis
– Company website
– Social Media
– Talk to vendors
• Make the call
– “I’d love to get together to see
if there’s any type of strategic
business relationship that
makes sense.”
• Follow up, follow up, follow
up!

12. M&A in Today’s Marketplace
• Why?
– Be very clear in your
objectives.
– Be able to articulate your
objectives to the prospective
seller.
– What’s your plan?
• Caution EGO Ahead!
– Don’t overlook “family”
– Intangible value?
• What is the Target’s
“identity”?
– Market
– Culture What is “breakage”?
– Operating systems

13. M&A in Today’s Marketplace
• Confidentiality
– Trust but verify
– Pore over details
– Focus on culture
• Build a Relationship with
the Target Broker and
Stakeholders
– Stakeholders include
spouses, partners, key
personnel
– Walk don’t run
Successful M&A is a process, not an event!

14. M&A/Roll-Ins in the Nextage “We” World
• “Trade your overhead for
overrides.”
– The Team Building mystique
– Is holding on a financial
reality?
• Can you survive in the “New
Normal”?
– What’s the commitment level?
• Financial and psychological
– Can I provide my sales
associates what they need?
• Tools to compete?
• Lead generation?
• Office systems
• Brand building

15. M&A/Roll-Ins in the Nextage “We” World
• Final thoughts:
– The pendulum swings both
ways
• Keep an open mind to the
possibilities
– A good poker player
• Starts with a bankroll
• Knows when to hold and fold
• When to bluff…or not!
• Knows when to go All-In