Complimentary mortgage and title businesses are two key contributors in the proposed merger between Compass and the combined Christie’s International Real Estate and @properties brands.
Both companies have mortgage joint ventures with Rate: Proper Rate for @properties and Originpoint for Compass. They also have their own title and escrow businesses.
“One of the validating points for us to create a JV for a mortgage business with Guaranteed Rate is we saw that @properties had a JV with Guaranteed Rate (the former branding of Rate),” Compass CEO Robert Reffkin, said on a conference call announcing the deal.
The deal is valued at $444 million, including $150 million of cash to be paid at the time of closing and the remainder to be equity in the combined company. The equity portion consists of approximately 44 million shares priced at $6.6612 per share and will be issued one year after the closing date.
“We are accelerating our integrated services strategy by adding title and mortgage businesses with above-industry average attach rates and adjusted EBITDA margins that are accretive to our current title margins,” he said.
On prior earnings calls, Compass management said it looked to grow its integrated services in all of its largest markets and this deal, Reffkin said, is “a meaningful step in that direction.”
The addition of Proper Title, for example, differentiates from Compass’ own business because it operates in attorney-directed markets, which is more difficult and takes longer to gain traction in, rather than agent-directed ones, Reffkin explained.
In particular, the deal gives Compass a title presence in the Chicago market, an area it currently does not have because of the attorney-directed nature of the business in that metro area.
“It takes a long time to build, and they have the best one by far, of all the brokerage firms,” Reffkin said. “It’s an additional lever for us…Compass agents will now be able to recommend to their clients’ Proper Title which is a growth synergy that we have not baked into our synergy number, but it is a revenue synergy.”
In the first year of the deal, the title business is expected to produce around $25 million in revenue for the combination, out of a total consolidated revenue estimate of $500 million.
“We now have a mature partner who knows how to operate them,” said Compass Chief Financial Officer Kalani Reelitz, adding on to Reffkin’s comments. “It expands us very quickly, whereby our strategy to date, as we’ve talked to you folks about, has always been organic growth, through JV or M&A.”
Compass will keep the @properties as a separate brand for the foreseeable future, with its co-CEOs Thad Wong and Mike Golden running its day-to-day operations, Reelitz said.
The acquisition of Christie’s will bring Compass into the real estate franchise business and that will also operate under the current name.
Requests for further comment from Compass about the mortgage business’ future, as well as to Rate, were not returned by press time.
