2017 – A YEAR OF CONSOLIDATION, MERGERS AND ACQUISITIONS
As predicted early in the year, we foresaw a substantial increase in the number of agency consolidations, mergers and acquisitions. So, why has this occurred and what does 2018 hold?
Key reasons of the increase are:
- The growth in the number of Principals who are re-positioning their businesses to have a more corporatized practice focusing on increased profit and asset value as opposed to top line turn over.
- To reach this growth, agencies are keen to bulk up the number of properties under management and are actively sourcing opportunities to purchase.
- More businesses are ensuring their Management Accounts reflect individual profit centres for property management and sales so financial knowledge is power.
- With changing market conditions, an increase in the number of small businesses experiencing cash flow stress and are reviewing their options as whether to sell their business as a going concern, sell their rent roll or merge agencies.
- The realization that merged businesses more often than not, result in better functioning businesses, higher returns for the partners and better work/like balance.
- Increased pressure on sale commission and property management margins reducing profitability.
Another influencing factor is a greater understanding of how banks assess funding and re-financing for agencies. Whilst they have always done so, banks are emphasizing with greater clarity for client benefit their analysis of transactions based on a combination of debt serviceably, profit margins and asset value.
We endorse this transparent and clearer approach, simply because owners gain a greater understand of the processes more quickly.
Sold what does 2018 hold?
We see the same trends continuing through 2018. In some markets’ we predict a greater increase in this activity based on the abovementioned business pressures gaining momentum. The main influencers will be big businesses sourcing more rent rolls to buy and some smaller businesses being squeezed by cash flow stresses.