FOR MANAGERS: Best Practices
Selling your brokerage
Brokers tell how to increase the value of your company and make it more saleable.
BY MICHELLE HOFMANN
Patrick Grabill laid the groundwork to sell his brokerage long before he handed the keys to NRT Inc. last July.
In 1981 Grabill was a brash, young independent with an eye on growth. He phoned Forest E. Olson, then president of Coldwell Banker’s residential real estate division, and asked one question: “What do you look for when buying a brokerage?”
Olson’s answer changed Grabill’s life.
“We ask ourselves, ‘What happens when the broker dies?’” Olson replied. “If the answer is that the company is merely the shadow of the broker’s ego, then there’s no value. But if we can answer that the company will go on because they’ve built management and infrastructure, then there’s value and we’re interested.”
“I hung up the phone and said, ‘I have got to change the way I do business,’” Grabill recalls.
Grabill then did what many brokers who have been successful at selling their business have done: He developed a plan to ensure continued viability of his company.
If your long-term business goals include someday selling your company, Grabill and others say there are some things you can do to increase your company’s value and smooth the transition when you sell.
Olson’s words prompted Grabill to stop simply running his business and start building a saleable commodity. Patrick M. Grabill & Co. merged with King Thompson in 1983. Grabill took the helm and started acquiring offices in lucrative markets, making the firm an attractive option for competing brokers looking to move on or to merge.
Eighteen years, more than 600 salespeople, 18 offices, $1.1 billion in annual sales, and 30 mergers later, Grabill, CEO of Columbus, Ohio-based Coldwell Banker King Thompson, sold to NRT. In doing so it became one of 85 brokerages bought up by Cendant Corp.’s acquisition arm in the last two years.
Selling, he explains, is just another move on the chessboard of growth. “It was a difficult decision, but strategically it was the right decision. We had been in a significant growth pattern prior to the acquisition, but this leapfrogs us to a new level and gives us additional resources and the ability to grow,” says Grabill.
The sale gave the company access to a talented management pool, he says. New levels of information technology, staff training, financial resources, and concierge services are an added bonus.
The price is right
Certain factors can make a company more attractive. For Grabill, valuing his company and structuring the deal were fairly easy. To determine his asking price, he hired an acquisition consultant and used the EBITDA (earnings before interest, taxes, depreciation, and amortization) formula, a measure of profitability that looks at revenue minus expenses.
Buyers aren’t foolish, he says. “You may have a fine company with a good reputation, but it has to have a good balance sheet and show a history of operations before there’s real value there,” he explains.
On the other hand, buyers aren’t always interested in profits. “Your company could be losing money and still have value,” says Joe Kalkhurst, senior vice president and director of marketing and sales for York Properties Inc. in Raleigh, N.C. Kalkhurst once purchased a company to acquire its management team.
He’s been involved with six acquisitions in the past 30 years—the most recent, with Simpson & Underwood, created York Simpson Underwood in January 2001. In the transaction, York Properties merged its residential sales division with Simpson & Underwood to boost the new outfit to 185 sales associates, five offices, and $650 million in annual sales.
York Properties now offers affiliated services to the new company.
Culture shock
“A good relationship with your fellow brokers in your market area,” says Grabill, “is your best growth-and-marketing strategy.” Other talking points: a strong local reputation, revenue-generating affiliated services, market share in lucrative areas, and close-by locations, which can alleviate staff relocation problems for brokers seeking to consolidate offices after the sale.
Brokers say the greatest challenge isn’t valuing their companies, but finding a buyer with a compatible vision and philosophy who’s sensitive to the potential ramifications of the sale—eliminating management or altering commission structures, for example.
“If you’re trying to merge a company that sells million dollar houses with a company that sells starter homes, the cultures are going to clash and the merger is probably going to fail,” Kalkhurst says.
Grabill concurs: “If they all get mad and walk out the door, you don’t have much of an acquisition.”
This cautionary insight has a familiar ring for Bill Podley, former broker-owner of Pasadena, Calif.–based Podley, Caughey & Doan, REALTORS®.
When he sold his five-office company to Coldwell Banker in August 1999, two-thirds of his 150 salespeople left. “It was hard to see people leave what we had built,” says Podley, now a broker with Coldwell Banker Old Pasadena.
Podley believes that the mass defection was caused by the name change. The lesson, he says, is don’t be too quick to do away with an established name. “It’s your identity and worth something in the local community.”
Podley’s main reasons for selling were age—he was turning 50—health problems, and too many 50-hour weeks, he says. The company was posting $650 million in annual sales. But, Podley says, some associates thought he had sold out and taken the company’s entrepreneurial spirit with him.
“You have to be prepared for that,” he says. “Some people are going to feel as if you’ve abandoned them. It’s as though dad walked out on the kids.”
Whatever the reasons, be clear
Experts say being clear about why you want to sell (financial need or personal desire, for example) and what you want to achieve (retirement, or less financial or legal liability) can be beneficial on many levels.
If you want to slow down, for instance, don’t be surprised if, at least in the short term, you have no time to float off in a golden parachute. Many sellers have conditional deals that require them to stay with the company after the sale, so experts say it’s important to be realistic and patient. “Selling your business can be financially rewarding; but from my experience I’m working harder now than I did before, because I want to make it work,” says Grabill.
“It’s not one of those deals where you lateral a football to someone and walk away. You have to be part of a new team.”
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