The Notorious B.O.B.’s series of posts on Move “giving back” REALTOR.com to NAR (one here, one on his blog) plus a Facebook conversation got me thinking. Which results in free consulting advice. Worth exactly what you paid for it, of course.
NAR should take Move private and buy it outright.
It eliminates a lot of problems, while of course, creating some new problems. Hey, that’s life. Let’s get into it.
Taking Move Private
As of this writing, Move’s market cap is $487.21 million on revenues of $227 million and EBITDA of $13.6 million. Given recent trends, like falling into third place behind Zillow and Trulia and defections by senior staff, the current shareholders of Move might be in the mood to sell for a slight premium. Move has 39 million shares outstanding, and the stock is trading at $12.40. For easy math, call it 40 million shares, and say NAR offers $14 per, a premium of over 10%.
Move also has $118 million in cash right now, and debt of $82.5 million, so net cash is $36 million. So, NAR can assume the debt outright, pay $14 per share, and then take the $118 million in cash (or distribute ahead of time, lower the purchase price, etc. etc.). The net cost of buying Move outright drops to $440 million or so from $560 million, plus fees.
NAR has a million members; a one-time special assessment of $250 per member raises $250 million right there. Borrow $200 million or so on a convertible note, and there you go. Who might be interested in putting in $200 million on a convertible debt basis? Hmm, I’d call Warren Buffet, who owns HomeServices of America, and Leon Black, who used to own Realogy. For those guys, $100 million each isn’t a huge bet.
40 million shares in hand, NAR sets up a special entity that holds all of those shares and receives all of the dividends and proceeds from any sales. That fund can be used for only two purposes: direct distribution to NAR members, or defraying the cost of NAR dues.
Oh by the way, there may not even be a need to setup a special entity. Just use RPR, which is a wholly owned subsidiary of NAR, and then merge the two entities together. Move + RPR starts to sound interesting, no? Since NAR today is funding RPR through dues dollars anyhow — roughly $40 million per year — combining some of the resources of Move and RPR results in cost efficiencies in the combined entity.
Keep in mind that this isn’t an asset purchase, where NAR just takes back the URL, the Realtor brand, and a bunch of data. This is buying the whole company, which includes all of the staff, many of whom are way talented and know how to run a national portal. (Yeah, yeah, all the negativity around getting killed by Zillow and Trulia isn’t misplaced, but let’s not forget that even if Realtor.com is getting beaten by those guys, it’s still way ahead of everybody else.)
Why Do It?
Well, first of all, it’s clear that Move and NAR wants to be joined at the hip. Last year’s vote to “free up Realtor.com” was a clear signal. That NAR joined the recent lawsuit by Move against Zillow and Errol Samuelson is an even clearer signal. But the relationship is a weird sort-of-together but sort-of-not deal. It’s like a boyfriend-girlfriend thing where they kinda live together, but still see other people.
Take the plunge and go all the way then. Buy it, own it, and now NAR does have an actual national portal with actual consumer traffic, as well as enormous technology assets and extremely talented people.
Second, far too many REALTORS have this weird hatred of Realtor.com, because it uses the word “REALTOR” in the URL. So many brokers and agents say things like, “We need to take it back!” or some such. Fine, call them on it. Say, “Okay, we heard you, we took it back. We now own it. All profits come straight to us, and then through us, direct to you the member.”
Third, many of the rules that NAR put into place to make it impossible for Move to compete with Zillow and Trulia had the same incentive structure as government regulators. When some regulator promulgates a rule forcing companies to do things a certain way, that regulator doesn’t bear any of the costs of that rule. Force brokerages to have to put up 10′ blinking neon signs? The regulator isn’t out of pocket a penny. Similarly, NAR put restrictions on Move, a third party company, which hurt the shareholders of Move but not NAR. Change that incentive, where NAR has a $500 million investment in Move, and I think the rules would suddenly become far more rational.
Fourth, NAR and its state and local affiliates have been searching high and low for ‘relevance’ in these last few years. The MLS is searching high and low for additional member benefits and ancillary revenue and so on. Okay, how about a ginormous technology stack to help with that?
Move’s revenues in 2013, as noted above, were $227 million from a combination of advertising sales on Realtor.com and the software division (i.e., Top Producer, Tiger Leads, ListHub, etc.). That’s $227 per member of NAR. If NAR raised dues from $120 per year to say $300 per year, but each member got full access to Top Producer, Tiger Leads, and all of the “premier” features on Realtor.com… isn’t that a savings to the member? As far as I know, a Top Producer subscription costs way more than $300 per year, not to mention costs of Showcase Listings and so on.
And the annual payment by the REALTOR isn’t just NAR dues; it also includes the state and local dues, plus any fees for the MLS, all lumped into one package (usually). That’s the whole three-part agreement thing, right? So the total annual spend by a REALTOR member could be $600 or more, depending on local/state/MLS costs. Raise the whole kit and caboodle up some: say $1,000 per member per year, but now, included in that is a MLS system powered by Move technology, free broker/agent websites powered by Realtor.com technology, all the CRM tools in Top Producer and Tiger Leads, all the leads from Realtor.com for free, etc. etc.
I bet you can justify that all day, every day, and twice on Sunday, dues funded or not.
Oh, and the “revenues” of Move under this model just went to $1 billion per year, with ARPU of $1,000. Carve out 50% for distribution back to the various Associations, and revenues still go to $500 million, or more than double today’s numbers.
Keep in mind that the number of licensees is maybe double the number of REALTORS. If they face the choice of paying $X for CRM, $Y for online advertising, or $1,000 per year to get all of that for free… wouldn’t membership numbers increase fairly dramatically?
Finally, it seems a fairly minor point, but one that should be made. Move owns Listhub, the main pipeline for listing data. All this wrangling and agony over listing distribution by evil third parties go away after this deal. NAR now owns the pipeline for listing distribution; put in what policies you wish, subject only to government oversight and regulation. Syndication policy can be dictated by REALTORS, at least until the CFPB and HUD and DOJ step in.
Suppose This Works?
Suppose for a moment that NAR does do something like this and it works. Suppose that NAR decides wisely not to interfere with the most valuable asset it owns, and allows Steve Berkowitz and team to run the company as they need to in order to compete. Suppose all this fantasy works. Then what?
Why then you pull a Leon Black, who took Realogy private, and then public again, and made $1.3 billion in profits.
I’ll be waiting by my phone for the call from Dale Stinton. Or not. 🙂
This post has been brought to you by “Black Swans of Real Estate: Truly Unlikely Scenarios”.
-rsh
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