Reffkin pitches 4 outcomes of ‘transformational’ deal
Compass’ CEO told investors that acquiring Anywhere “unlocks our long-term vision” while assuring agents of support for “brands, platforms and cultures.”
Shortly after Compass publicized its plan to acquire fellow brokerage giant Anywhere Real Estate, the company's leaders sent emails to its agents and broker/owners, and spoke with investors about the details of the transaction and the benefits it expects to realize once the deal is approved.
In a Sept. 22 letter to agents, Compass CEO Robert Reffkin emphasized the continuing independence of each company and its "brands, platforms, and cultures," while assuring broker/owners under the @properties Christie's International Real Estate umbrella — now part of the Compass ecosystem following an earlier acquisition — that "@properties will continue to operate with the same distinct identity we hold today."
Reffkin also sought to reassure investors during a Monday conference call, touting the industry-shaking move as one that "evolves Compass into a unified operating system for residential real estate" and outlining four beneficial outcomes for the company.
Reffkin and CFO Scott Wahlers addressed potential concerns about the financial implications for the mega-firm, though investors still appeared to be a bit rattled as Compass' share price fell nearly 16% by the close of trading on Monday.
'A monumental moment'
Reffkin spoke of the "collective resources" of the combined businesses, calling the acquisition "a monumental moment for Compass, our real estate professionals, home sellers and home buyers as we bring some of the best brands in our industry together."
He outlined four primary benefits of the deal:
Creating "a premier residential real estate platform"
Expanding ancillary services and diversifying revenue streams
Delivering "significant free cash flow," which is seen as a sign of corporate health
Building an end-to-end experience for consumers
On Compass' platform and its benefits for real estate pros: "More users, listings, transactions, market and data insights makes our platform and the agents using it more valuable," Reffkin said.
"The most successful companies don't replace entrepreneurs and small businesses, they empower them. And that's what Compass is doing. We are building an end-to-end technology platform that saves real estate professionals and broker owners time, helps them run their businesses more efficiently and most importantly, allows them to provide differentiated service to their clients at a level they could not achieve alone."
On the value of ancillary services and diversification: Reffkin said Anywhere's robust ancillary businesses would add more than $1 billion in revenue — translating to a 50% increase in revenue based on Compass' second-quarter earnings — and give Compass "an immediate presence in 30-plus service areas in title and escrow and mortgage operations in all of our key markets."
Anywhere's extensive franchise network represents another key source of income, Reffkin noted, allowing Compass "to diversify our revenue mix with higher margin and more recurring revenue streams."
On free cash flow and flexibility: That mix of revenue sources, Reffkin said, "will make our free cash flow profile more resilient," while on the spending side, merging business operations would result in "significant cost synergies" that also improve cash flow.
CFO Scott Wahlers elaborated on this topic, noting that a larger combined company would have more leverage with vendors, leading to "more favorable pricing with higher volumes," and the consolidation of office space and redundant technology systems would drive additional cost savings.
But, Reffkin emphasized, "I would like to be clear that paying down debt will be the top priority."
On consumers and a 'seamless' experience: Buying and selling homes "will become more simplified, transparent and more seamless, delivered digitally and cemented by trust" between clients and their agents, Reffkin said.
The addition of more ancillary services, Reffkin added, "accelerates our ability to deliver what home sellers and home buyers need, from home search to home financing to title insurance and other home services, all in one place and all guided by their trusted real estate advisor."
What lies ahead: Whether Compass can achieve these outcomes remains to be seen. "I want to make clear that I fully recognize the enormity of the integration task ahead of us," Reffkin acknowledged, adding that the company would be naming a chief integration officer in the coming months to support the merger.