RISMEDIA, August 26, 2010—Acquiring companies in today’s economy is an important question that needs to be examined closely, even for companies historically inclined to grow through acquisition. In this month’s Power Broker Roundtable, industry leaders Ron Peltier and Dan Elsea discuss the important questions that should be answered before acquiring companies in the current economy.
Steve Brown, Special Liaison for Large Firm Relations, NAR
Ron Peltier, CEO, HomeServices of America, Minneapolis, Minnesota
Dan Elsea, President, Brokerage Services, Real Estate One, Detroit, Michigan
Steve Brown: To buy or not to buy, that is the question—and in today’s economy, it is a question worthy of debate even for companies historically inclined to grow through acquisition. And if this is the time to buy, what do you look for in an acquisition candidate? How do you evaluate its impact on your current business? As important, do you fold the new company into your brand, as many real estate franchisors do, or make the best use of an established local brand by retaining the original name? For some answers, we’ve invited a couple of seasoned pros to join us at the Roundtable today: Ron Peltier, who grows HomeServices of America through an ever-expanding array of affiliate companies retaining their own brands, and Dan Elsea, whose family-owned business has been franchising the Real Estate One brand since 1929. Ron, let’s begin with you. Is your business acquiring companies today? And if so, what do your look for?
Ron Peltier: Yes, we are actively interested in growing our footprint by continuing our acquisition strategy. We slowed down as the market was correcting over the past few years, but with some 70,000 independent brokers operating today, there is plenty of room for consolidation—and we look for companies who want to retain their own brand and character but benefit from the services we provide.
Dan Elsea: I’d say half our growth over the decades is a direct result of acquisition. If we’ve slowed up over the past four years, it’s because sellers have been reluctant to sell while their own financials have been settling. But that will change as the market turns around, and we’re always looking for companies that are right for us in terms of culture and financials. I’d say one out of three companies we look at turns out to be right for us.
Steve Brown: When you say a company is “right for you,” can you be a little more specific?
Dan Elsea: Well, the quality of a company is important, of course…a company well respected in its marketplace…and a broker who wants to, rather than has to sell. Many of the brokers whose companies we acquire want to step out of the day-to-day but retain a role in the business—and that’s fine with us. If the fit is right, we can always find a place for a successful, well-run company—especially if it will strengthen our presence in a region or open a new market.
Ron Peltier: Strong leadership is essential for us because the company will retain its own brand and continue to operate as it always did. Even when a broker has an eye on an exit strategy, he or she will often continue to dedicate time and effort to the business because the goal is to leave a legacy of a great brand that’s been built up in a marketplace.
Steve Brown: You’ve both talked about company culture. How important is that when you acquire a company, and how do you go about transitioning?
Dan Elsea: To an extent, every independent company is a reflection of the broker’s style, and there’s often some reluctance on the part of the sales associates to step into a different environment. We start by having open discussions, both group and one-on-one, so they understand what is apt to change in the day-to-day and what will likely remain the same. In fact, the majority choose to stay on because they will have the best of what they’ve always known bolstered by the service, technology and business support that we are able to provide.
Ron Peltier: I’d say that’s true. Because our companies retain their own brand, we have a vested interest in acquiring strong businesses with positive growth prospects, and we respect the expertise of their leaders. We want our companies to flourish and go forward with the enthusiasm and know-how of the entrepreneurs who’ve made them what they are—and we work with brokers to provide the tools that will ensure they do just that.
Dan Elsea: Mostly we work to establish a “common view”—a business environment in which the benefits of the merger are clearly apparent and beneficial to all.
Steve Brown: And how do you see the prospects for acquisition in the current economic climate?
Ron Peltier: We’re certainly seeing more interest than we did even a year ago. I think the next 24 months will offer great opportunity for both buyers and sellers.
Dan Elsea: I agree. The interest is there on the part of both buyers and sellers. It’s a matter of brokers reaching out—touching bases with everyone. You never know who might turn out to be a viable candidate.