The JMG acquisition gives teams leverage, but not equal valuations

When Keller Williams announced its acquisition of the Jason Mitchell Group (JMG) earlier this month, Steve Murray, the co-founder of RealTrends Consulting, felt it was an historical moment for real estate companies with models similar to JMG, such as Mark Spain Real Estate, PLACE or Robert Slack Group. 

“The acquisition of Jason Mitchell Group means that a very large, very smart investor has just put a stamp of approval on that kind of a business model,” Murray said. “This is the first acquisition of this kind and this size.” 

However, Murray warned that this news does not mean that every large team or brokerage operating on a team model is worth the same or can generate the same multiple that JMG did. 

Craig McClelland, a partner at McClelland & Hahn Consulting, agrees, noting that this has to do with the fact that JMG isn’t just any real estate company.  

“Keller Williams didn’t just acquire JMG, they also acquired a relocation network and a lead distribution network, as well as relationships with Rocket and Zillow. Your typical team doesn’t have that component to it,” McClelland said. “You can’t just be like, ‘I have a team of 30 agents and a Zillow Flex agreement and now I’m worth $100 million’ — that isn’t going to happen. There are other dynamics you have to add into this equation.” 

Everything old is new again

Additionally, while this news certainly sparked some headlines in the industry, McClelland doesn’t feel it is all that different from what Cendant, the predecessor of Realogy, the firm that became Anywhere Real Estate, previously did with its franchise agreements. 

“They would sell franchises to independent operators and provide them with the opportunity to be part of their lead network,” McClelland said. “So, they have access to a lead source as well as other opportunities to grow their business, but eventually if they wanted to exit, they had the opportunity to sell the franchise to Cendant. This is kind of the same thing, but with teams instead of franchises.” 

What am I worth? 

When it comes to valuing a team, something Murray and his business partner Scott Wright have done several times over the years, Murray said it doesn’t differ too much from how they value brokerages. 

“It is based on cash flow and EBITDA and then you look at a multiple, and today, brokerage companies are in a fairly narrow band of multiples,” Murray said. “In the past, when big companies like Berkshire Hathaway were chasing after independent brokers and competing for them, multiples could push to five or six, but today, a big firm that’s out there is going to trade at a five, at best.” 

With teams; however, Murray said they need to examine how much of the business comes directly from the team leader’s sphere of influence.

“We heavily discount that business because the ability to transfer essentially personal relationships is very low,” he said. “Instead we look at how much of their business is what we call business generated — online leads, direct mail, billboards, phone calls, public marketing.” 

The next JMG?

For teams or firms looking to find themselves in a similar position to JMG sometime in the future, Murray said they will need to consider “scaling up.” 

“Now you may begin to see some of those teams that are doing well and generating significant cash flows, try to do their own mergers and acquisitions with other teams of their size,” he said. “Overall, I think what we will see happen is other teams start rethinking whether they should just be buyers or if they should be positioning themselves to sell.” 

McClelland added that it is important for the companies to make sure they are running a good business. 

“If you have good margins, you don’t have excessive overhead, good producing agents that are a resource to the company, then you will be more attractive,” he said. 

While both McClelland and Murray believe we may never see another acquisition like Keller Williams’ acquisition of JMG unless another similar company arises, they do feel this does signify a shift of sorts.

“Teams now have a seat at the deal table, and they are saying ‘Hey, I’m an intelligent acquisition,’” McClelland said.