“The worth of a thing is what it will bring,” states the old English proverb. Many brokers have had a spectacular year and they’re taking personal stock. The question of value, while it seems simple enough, is quite complicated.
There are many reasons for establishing a brokerage’s value such as financial planning, growth options, funding considerations, merger and partnership opportunities, exit strategies and more. Often, each has a different set of values, but they have a common purpose: they are usually a starting point for strategic change planning.
I hear the question every week, “what is the multiple for valuing my company?”Most brokers are generally surprised (and somewhat annoyed) when I respond simply with — “it depends.” As there are numerous factors that impact value, no single, simple and accurate multiple is applicable. Even within the same market, comparable brokerages will often vary greatly in value.
- Pricing package – The structure including cash, payments, earn-outs, management contracts, non-compete agreements, etc. all drive the pricing package. BTW – I’ll take terms over the price almost every time.
- Company dollar – What is the gross profit after commissions are paid to the agents?
- Business model – Some brokerage models have much more value than others.
- Composition of the income – How much of the business is the owner/broker, family or a small number of agents?
- Metrics – Your listing base, average sales price, pendings, 12-month trends.
- Per person productivity of the agents – How productive are your agents overall.
- The local market –Your market size, economics and local market conditions.
- Timing- Most brokers are busy now and some feel their company’s value is through the roof – surprisingly, that is not always the case.
- Availability of funding –Sufficient funding to facilitate transactions has a strong impact on both the value and viability of firms being acquired.
- Management plans– What is the continuation of management’s involvement in the business?
- Local M&A activity – What’s the activity in the market and are major players buying?
To make the best plans, you need a real value. My suggestion is rather than depend on a multiple “guesstimate,” talk to a real estate M&A professional who knows your market and can give you some direction in terms of what is happening locally. We can help you understand your company’s true value. It’s never too soon to begin planning.
Do you ever think of selling your company?
Brokers think about it all the time and they sell good companies for many reasons, including:
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