M&A ripple effects: How big-brand deals are changing the conversation for brokerage owners

Consolidation among North America’s largest real estate brands is prompting more brokerage owners to rethink their next move, according to one mergers-and-acquisitions adviser who says the pace of deals is accelerating on both sides of the border.

REMA founder and CEO Mark Lukes (contributed).

Mark Lukes, founder and CEO of Sarasota, Fla.-based Real Estate Mergers & Acquisitions Co. (REMA), said headline-making consolidation news from across the industry’s biggest banners is leading more broker-owners to look internally and consider options they may not have contemplated a few years ago.

“The sheer volume of deals has skyrocketed. And there’s a multitude of reasons for that, the least of which is that it’s a weird time for the industry on both sides of the border,” he said.

“There’s a lot of volatility, not only in the market at large, but in the various brands. And the people down the line, because of it, are trying to figure out what their next steps are.”

Founded in 2022, REMA primarily advises brokerage owners on selling their businesses. The company has averaged about 20 to 25 transactions annually since launching, but Lukes said it is on pace to facilitate up to 100 deals this year, with some of the biggest ones involving more than 2,000 agents.

Historically, about one-third of the company’s business came from Canada. This year, Lukes said, that figure is expected to reach about half.

Big-brand moves filter down

Lukes pointed to Compass’s acquisition of Anywhere Real Estate and the pending acquisition of Remax Holdings Inc. by The Real Brokerage as some of the most influential forces at play.  

“(Large real estate brands) are making different decisions now than they ever had before, probably due to these market volatilities more than anything else, and those decisions that are being made today are going to have massive impacts for the next few years,” he said.

“And that just filters down to the individual brokerages.”

As large brands reshape their businesses through acquisitions and other strategic changes, Lukes said brokerage owners are increasingly reaching out to discuss what those developments could mean for their own companies.

“We’re getting calls all the time, whether they’re franchisees saying, ‘We need to make some different choices,’ or maybe, ‘Our agents are scared, and they don’t know what is happening.'”

“The big brands are making manoeuvres now that will presumably help them in the future, but that has a ripple effect that is significant.”

Retirement adds another layer

Housing market swings have also changed the economics for many brokerage owners, Lukes said. Home prices surged during the COVID-19 pandemic before retreating in many markets, putting pressure on independent brokerages.

At the same time, the demographic of broker-owners is becoming an equally important driver of mergers and acquisitions.

Based on REMA’s observations, Lukes estimates roughly half of brokerage owners in the United States are at retirement age. In Canada, he believes the proportion is even higher.

“That’s a huge deal,” he said.

Some owners, he said, are deciding now is the right time to exit while buyer demand remains healthy.

“Some of them have decided it’s time to get out while there’s still a healthy market left.”

Value comes down to profitability

Lukes said one of the biggest misconceptions among brokerage owners is how their businesses are valued.

He cautioned against relying on artificial intelligence tools or simple rules of thumb to estimate a company’s worth.

“Unfortunately, far too many people are going to ChatGPT and asking what their business is worth,” he said.

“Most of the AI bots are wildly off. It can’t be done that way.”

Instead, he said buyers are increasingly focused on business fundamentals.

“Unfortunately, the industry got into the habit of saying, ‘If I have a certain amount of agents, then I must be profitable, ergo I can count on selling my company for something.'”

“We need to get back to business fundamentals. You have to look at how many agents do I have and am I profitable, and if I’m not profitable, then my company isn’t worth what I hope it might be worth.”

He said some owners are surprised when they receive a formal valuation because a large agent count does not necessarily translate into a valuable business.

More deals ahead

Lukes expects consolidation to continue accelerating as brokerage owners respond to changing market conditions, evolving brand strategies and an aging ownership base.

“The consolidation and M&A will not only continue to go forward unabated, it will accelerate, at least in the near future,” he said.

“If everybody thinks that the consolidation that happened over the last year is the end, they’re wildly mistaken.”

He said the decisions large brands make today could influence the industry’s direction for years, with ripple effects extending well beyond the companies involved.

“I think the industry needs to keep that in mind on both sides of the border, because they’re linked with the brands on both sides. It’s going to be an interesting few years, to say the least.”

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