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When Is the Right Time to Sell Your Company?


I have had many conversations with business owners about when the right time to sell is and the likelihood that the transaction will close. The honest answer to both questions is that there isn’t an exact answer.

There usually isn’t a perfect time to sell your company, and the likelihood of a deal closing depends on many variables. A time to consider selling your company is when risk, opportunity, personal goals, and market conditions start pointing in the same direction.

For founders of private companies, deciding whether to sell is one of the biggest financial and personal decisions they will ever make.

Here are some of the most important things owners should consider when deciding to sell.

How Much Time Do You Have to Sell Your Company?

Time is one of the biggest drivers of outcomes in a sales process.  If you need to sell quickly, due to burnout, partner issues, customer risk, industry changes, or financial reasons, your options and leverage are likely limited.

If you have time, you have more options to consider that are focused on value creation, such as:

  • Improving margins
  • Diversifying customers
  • Building a management team
  • Locking in contracts
  • Cleaning up financials
  • Growing recurring revenue
  • Running a systematic and competitive sales process

Time creates leverage. Owners who don’t have to sell usually get better outcomes than owners who need to sell.

What is the Next Phase of Investment?

Many founders reach a point where the business needs another level of investment to keep growing.

That could mean:

  • New equipment or technology
  • Hiring a leadership team
  • Expanding geographically
  • Launching new products
  • Raising capital
  • Making acquisitions

At that point, founders often ask themselves, do I want to invest more time, money, and risk into the next phase, or is this the right time for a partner or buyer to take the company forward.

Will There Be a Better Time to Sell Your Company?

This is the question almost every owner asks. No one wants to sell and then watch the company double in value three years later, but waiting also introduces risk.

Things that can change over time:

  • Interest rates
  • Industry consolidation
  • Competition
  • Technology disruption
  • Customer concentration
  • Margins
  • Growth rates
  • The economy
  • Buyer demand
  • Your own energy and motivation

Many successful sales happen not because it is the perfect time, but because the owner believes selling today is better than selling in the future.

Does Structure Matter?

When owners think about selling, the first question is usually:

What is my company worth?

That is obviously important, but valuation by itself can be misleading. The headline number is not the same as the likelihood of a deal, what you actually receive at closing, and it is definitely not the same as the overall outcome of a transaction.

Owners should be thinking about the full picture, including:

  • How much cash is paid at closing
  • Whether there is an earnout
  • Working capital adjustments
  • Debt payoff
  • Taxes
  • Employment agreements
  • Timing of payments

Two deals with the same valuation can produce very different outcomes for the seller depending on the structure. Sometimes a slightly lower valuation with more cash at closing and fewer contingencies is a much better deal than a higher valuation that is heavily structured and includes aggressive earnouts.

What Stops a Deal from Closing?

Another thing many first-time sellers don’t realize is how many transactions that start never actually close. Getting a letter of intent often feels like a marriage proposal, but in reality, it is often just the first date. 

Deals can fall apart during diligence, financing, or final negotiations for many reasons. Common reasons deals don’t close include:

  • Customer concentration concerns
  • Financial diligence findings including quality of earnings adjustments
  • Loss of a major customer during the process
  • Employee retention concerns
  • Financing and legal issues
  • Working capital disputes
  • Earnout disagreements
  • Cultural or management team concerns
Do I Evaluate the Buyer, Not Just the Offer?

Because of this, sellers should not only ask: How much is the buyer offering?

They should also ask: How confident am I that this buyer will actually close?

A buyer with committed capital, a track record of completed acquisitions, and a clear diligence process is very different from a buyer who still needs to raise money or has never completed an acquisition before.

In some cases, buyers use this information to better compete with you, improve their own operations, or benchmark their business against yours, even if they never intend to complete a transaction.

This does not mean buyers are acting improperly, diligence is part of the process, but founders should be thoughtful about what information is shared, when it is shared, and who it is shared with. A structured process and staged information sharing can help reduce this risk.

Experienced sellers and advisors should spend as much time evaluating the buyer as the buyer spends evaluating the company.

What Impact Does Customer Risk Have on Selling My Company?

Buyers spend a lot of time evaluating customers because they drive the revenue.

Owners should ask themselves:

  • How much of the revenue is recurring?
  • Do we have contracts?  Do they auto-renew?
  • Are we dependent on one or two customers?
  • Are relationships tied to me personally?
  • How stable are our customers’ industries?
  • Could we lose a major customer?

A business that can survive without the owner and without some significant customers is more valuable and easier to sell.

What about Employees and the Management Team?

Companies are much easier to sell when the business does not rely entirely on the founder.

Buyers evaluate items such as:

  • Management teams
  • Employees who will stay after the sale
  • Incentive plans and employment agreements
  • Current founder dependency

Simply stated, a company that runs without the owner is worth more than one that cannot operate without them.

Cash vs. Equity, Are You Really Selling?

Many transactions include rolling equity or taking stock in the buyer instead of all cash.

Owners should understand:

  • How much value/cash they are actually taking off the table
  • When they can sell the new equity
  • Whether there is a “second bite of the apple”, selling a percent of your company initially, but keeping some equity in the new entity
  • How much risk they are still taking after the sale
  • Overall, how much control they actually have now

Sometimes owners think they sold their company, but in reality they just changed partners, have less control, and still have significant risk.

Will I Have to Work for Someone Else After I Sell My Company?

This is a bigger adjustment than many founders expect.

After selling, founders often:

  • Report to a board or private equity firm
  • Have budgets
  • Need approval for decisions
  • Have growth targets
  • Have earnouts
  • Have employment agreements
  • Are no longer fully in control

Before selling, every founder should ask themselves: Am I going to continue for a period of time, and am I okay not being the boss anymore?

What About Other Factors, Intangibles?

Not every owner is only optimizing for price.

Many owners still care about:

  • Their employees
  • Their customers
  • Company culture
  • The company name and brand
  • Keeping the business in the community
  • The legacy they built
  • A good long-term home for the business

Sole focus on the highest price may create tradeoffs here.

What is Impacting Me Personally?

In the end, selling a business is not only a financial decision, but a personal one.

Owners should ask themselves:

  • Am I still excited about running this business? Am I burned out?
  • Do I want to do this for another 3–5 years?
  • Is most of my net worth tied up in the company? Do I want to de-risk financially?
  • What would I do if I sold? Am I ready?

These questions may determine the timing just as much as the market conditions and valuation.

Final Thoughts

Many founders look for the perfect time to sell. In reality, there rarely is one. The best time to sell is usually when the business is performing well, options are available, and the owner is personally ready.

You can’t control markets, buyers, or timing perfectly, but you can control how prepared you are and how well you understand your business, your risks, and your goals.

Preparation and timing don’t guarantee a perfect outcome, but lack of preparation almost always leads to a worse one.

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Influencing the Outcome of Deals and Driving Successful Integrations

Completing deals in the current business environment and integrating transactions can be challenging. With fluctuating valuations, divergent seller-buyer expectations, rising capital costs, and unknown agendas, the hurdles are high.  While tactical considerations and established playbooks guide M&A activities, there are often simple yet crucial factors that contribute to deal completion and successful integration.

  1. Scenario Planning – Take a holistic approach to transactions and integrations by mapping out a range of acceptable outcomes.  This is not only in terms of valuation and related synergies but also outlining key functional and value creation priorities with an associated timeline.  
  2. Motivation – Understand not only the motivations of the other party but also critically examine your own. Why sell? Why buy? Prioritize these motivations, extending beyond financial returns. During integration, delve into the reasons for obstacles by establishing genuine connections with the individuals involved.
  3. Communication – While posturing may be necessary for optimal valuation, transparency builds trust. Cut through the noise to enhance the likelihood of a deal. Apply the same principle to integration issues, be direct, ask crucial questions, and facilitate progress.
  4. Accountability – Driving deals to completion and integrating companies involves many internal and external participants and requires meticulous planning. Clearly outline tasks, assign responsibilities, establish timelines, track progress, adjust, and measure results. A structured accountability framework is indispensable for success.
  5. Ownership –  Having someone involved from deal inception to integration completion is invaluable. This individual possesses a comprehensive understanding of the big picture, asks pertinent questions, engages in tough conversations, and executes when necessary. While investment bankers and consultants play essential roles at different stages, having a leader and team involved throughout ensures accountability and a consistent focus on both completing the deal and maximizing the combined entity’s value.

What is my role and what my experience can help your Team with:

STE Advisors helps companies prioritize organic and inorganic value-creation opportunities and then executes against these activities. Frequently, organizations are too busy managing the day-to-day to take a step back, put together/confirm the big picture, and have the bandwidth to execute against the cross-functional initiatives that could drive the most value.

Specific past work and roles have included:

  1. Acquisitions and Partnerships – Helping companies sell, target and acquire, as well as integrate acquisitions and drive partnerships. 
  2. Strategic Planning and Transformational Initiatives –  Acting as an EOS (Entrepreneurial Operating System) Integrator or implementing OKRs (Objectives and Key Results), coordinating the business functions, ensuring accountability, and moving beyond the day-to-day to execute initiatives that systematically move the business forward.
  3. Developing and Executing Go-to-Market Strategies – Launching products and services by understanding buyers, differentiating from the competition, developing pricing, choosing distribution methods, establishing the sales process, creating marketing content, measuring results, and continuously refining the process.    

If you would like to learn more, please contact me at rsternot@steadvisors.com.

Visit my LinkedIn Profile: https://www.linkedin.com/in/robsternot/

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Essential Learnings from Navigating Company Transformation Challenges

Embarking on transformations within family-owned, founder-led, PE-backed, and public companies presents a myriad of challenges for leaders and organizations. Although learning from successes is valuable, the true lessons emerge from navigating through challenges and learning from mistakes. In this article, I explore several common issues I have faced during transformations and provide insights on effectively managing them.

Resistance to Change

It is not easy to change your day-to-day let alone the overall strategic direction of your company. We are often creatures of habit doing what has worked in the past and relying on the people that have helped get us to this stage.  Changing course is challenging.

You have to be open to having very direct, sometimes difficult, but mutually respectful conversations.  As much as you can, the recommendations to change should be supported by research, facts, numbers, and ultimately, meaningful changes need to be measured and new KPIs may need to be established. It is also extremely important to gather multiple perspectives as you research to set the plan and related priorities.  Perspectives should be gathered from up, down, and across the organization.  This often creates buy-in or highlights resistance. Either way, being transparent is critical to start building trust moving forward.

The impact of not taking action or delaying change should also be very openly discussed.  The most significant value drivers may meet resistance for any number of reasons.  You may not want to change people, reporting relationships, or relinquish control.  There is a risk to doing these things, it can be uncomfortable, and there will be organizational pushback.  There also is a risk of not doing these things.  This needs to be discussed too. 

Leadership/Management Challenges

Scaling a business often demands transitioning from hands-on roles to strategic leadership positions. This can be difficult and may require developing new management skills or hiring new talent when required. This shift necessitates clarifying roles and responsibilities and identifying potential delegation opportunities. It is sometimes difficult for people to delegate and relinquish control, but if their work better aligns with their talent and growth potential the individual and the organization will be much better off.  They can focus and operate at the right level and area. 

Talent Acquisition and Retention

Transformation efforts may uncover partial or complete gaps in organizations or in specific skill sets.  The faster the gaps can be determined the faster they can be filled and transformation timelines can stay on track.  There is a caveat to this though.  Uncovering gaps is one thing, actually prioritizing and moving quickly to change, communicate, and fill them is another.  Sometimes new positions and org structures take time for existing founders and management teams to digest.  This is understandable, but delays will impact timelines and may create more fear in the organization.  Fear related to lack of information often impacts retention.  It is important to be as transparent as possible and communicate the plan simply and directly.  I have led a number of multi-year transformations where people knew they would either have to learn new skill sets, change their roles, or transition out.  The process and timeline was shared and most of the people stayed to help with the transition and some migrated to new roles.  Transparency built trust to push the transformation forward.

Investment in Scalability

For successful transformations, investments in people, processes, and technology are crucial. Demonstrating the impact and timing of proposed investments through research and measurement builds the willingness to invest and holds teams accountable. Involving team members affected by changes early on helps solidify buy-in and highlights any potential resistance, facilitating smoother decision-making.

Investors, founders, management teams, or other decision-makers need to be allotted a defined amount of time to do their diligence related to the plan and investment. Everyone will have their own ideas on this. These perspectives are often shaped by risk profiles (ages/time it takes for the transformation to impact org and valuation), levels of effort on their respective teams, effect on customer relationships (product/messaging changes), and influence on their jobs and organizations. Not everyone will completely agree, but when the decision is made to move forward it should be done with a consistent, simple message from a committed team starting from the top.

Conclusion

Executive teams, management, and founders often wear multiple hats, and their focus is stretched between managing day-to-day operations and driving growth initiatives.  To overcome these challenges, leaders need a combination of strategic planning, execution assistance, and a willingness to seek advice and support from mentors, advisors, or industry experts.  Above all, leadership teams need to be bought in, progress needs to be measured, and the execution teams need to be engaged.

What is my role and what my experience can help your Team with:

STE Advisors helps companies prioritize organic and inorganic value-creation opportunities and then executes against these activities. Frequently, organizations are too busy managing the day-to-day to take a step back, put together/confirm the big picture, and have the bandwidth to execute against the cross-functional initiatives that could drive the most value. 

STE Advisors partners with companies to:

  1. Develop/confirm the strategic plan, the execution plan, and related KPIs.
  2. Assist or lead the execution with team members inside your organization pushing key initiatives forward that you know you need to execute against.
  3. Work with you to continuously enhance the value of your business.

Specific past work and roles have included:

  1. Acquisitions and Partnerships – Helping companies target, acquire and most importantly integrate acquisitions and optimize partnerships.  
  2. Integrator Roles –  Acting as an EOS (Entrepreneurial Operating System) Integrator orchestrating the business functions, ensuring accountability, and executing on the initiatives that systematically move the business forward.
  3. Developing and Executing Go-to-Market Strategies – Launching products and services by understanding buyers, differentiating from the competition, developing pricing, choosing distribution methods, establishing the sales process, creating marketing content/stages, measuring results, and continuously refining the process.     

If you would like to learn more, please contact me at rsternot@steadvisors.com.

Visit my LinkedIn Profile: https://www.linkedin.com/in/robsternot/

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Simple Lessons from Soccer for Business Success

I have spent many hours over the past five years on soccer fields and basketball courts.  I am passionate about both sports, but soccer takes more of my time these days.  

Learning how to teach kids about how sports can impact their professional lives is important to me.  

Sports can provide valuable insights into building effective teams and leveraging each other’s strengths to drive success in the business world.

Teamwork

Teamwork is a fundamental principle that drives success in both sports and business. In the world of soccer, where coordination, communication, and collaboration are essential, teams that understand how to leverage their strengths often emerge victorious. Similarly, in the competitive landscape of business, organizations that foster a strong sense of teamwork and capitalize on their collective strengths are better positioned to achieve their goals.

The more knowledge we have of our own personal strengths and weaknesses and those of our team the more we can put the right pieces in the right places.  We can also understand how to help each other.  Great leaders and teams know how to pull people into organizational challenges and opportunities, learn from them, mentor them, and help them and the Company succeed.  Good coaches lay the foundation of this in teams too.  They instill a culture of teamwork and then take themselves out of the equation allowing the players to take over.  There is nothing better than seeing young players huddle up at halftime discussing amongst each other what is working, what is not, what needs to be changed and ultimately executing!   

It’s not the team with the best players, but the players who make the best team, that win.

Open Communication and Trust

Communication is the lifeblood of teamwork. Soccer teams rely on constant communication to coordinate movements, adapt to changing situations, and execute strategies effectively. Similarly, open and transparent communication is critical in the business world. Teams that foster an environment where every member feels comfortable expressing their ideas, concerns, and feedback can harness the collective intelligence of the group. Trust, built through effective communication, enables collaboration, innovation, and faster decision-making, propelling the team toward success.

I see this in youth soccer.  Some players are too quiet, some may be too loud and some instructions are unclear or destructive.  The positive outcome here is that the kids are exposed to communication issues early on in their lives.  The idea of timely and constructive communication needs to be taught and encouraged continuously (every practice/every game) with young players.  They do forget to make this a priority.  The best teams start with verbal communication on the pitch…

Contain, get your shape, make the run, take the space, you have time, turn, drive, support, through, drop, clear, cross, keeper, switch, and press

They build trust and eventually, their support for each other becomes more and more unspoken.  The players are automatically where they need to be.  Regardless, the field should never be quiet and the foundation is trust and communication.

Clear Roles and Defined Responsibilities

Like in soccer, where each player has a specific role on the field, businesses must ensure that team members understand their responsibilities and how their contributions align with the overall objectives. Effective teams in both soccer and business have clarity on individual roles, enabling seamless coordination and minimizing overlaps. 

If everyone is responsible, no one is responsible.

By defining roles, organizations can tap into the unique talents and expertise of their team members, maximizing their potential and enhancing overall team performance.

The correlation to youth soccer is not only helping them understand their roles but also knowing your audience and simplifying your message.  If there were perfectly made players who fit their exact roles this wouldn’t be necessary.  Very rarely do you have a balanced team of natural defenders, born goal scorers willing to take risks or balanced midfielders (this is where I played which I believe actually ties to my focus on cross-functional work today) who can defend, distribute and score when necessary.  You have to understand who they are, what they bring to the table, and make sure they are clear on their roles and responsibilities.  

An example of this is the position of an attacking mid. I see players in this role excel at distributing and defending, but when they are in the final third of the field and need to take it to the goal, they don’t.  The risk part isn’t necessarily natural to them.  You have to let them simply know that this is a part of their role (the attacking part!) and they need to help the team by taking risks.  You also have to support them when it doesn’t work.  Give them the skills and the confidence to do it the next time.      

What is my role and what my experience can help your Team with:

STE Advisors helps companies prioritize organic and inorganic value-creation opportunities and then executes against these activities. Frequently, organizations are too busy managing the day-to-day to take a step back, put together/confirm the big picture, and have the bandwidth to execute against the cross-functional initiatives that could drive the most value. STE Advisors partners with companies to:

  1. Develop/confirm the strategic plan, the execution plan, and related KPIs.
  2. Assist or lead the execution with team members inside your organization pushing key initiatives forward that you know you need to execute against.
  3. Work with you to continuously enhance the value of your business.

Specific past work and roles have included:

  1. Acquisitions and Partnerships – Helping companies target, acquire and most importantly integrate acquisitions and optimize partnerships.  
  2. Integrator Roles –  Acting as an EOS (Entrepreneurial Operating System) Integrator orchestrating the business functions, ensuring accountability, and executing on the initiatives that systematically move the business forward.
  3. Developing and Executing Go-to-Market Strategies – Launching products and services by understanding buyers, differentiating from the competition, developing pricing, choosing distribution methods, establishing the sales process, creating marketing content/stages, measuring results, and continuously refining the process.     

If you would like to learn more, please contact me at rsternot@steadvisors.com.

Why Transformations Stall

The Role of Conviction, Simplicity, and Follow-Through in Large-Scale Change

After more than 25 years of leading, advising, and operating inside private businesses, PE–backed companies, and public organizations, I’ve learned that transformation is primarily about honesty, discipline, and follow-through.

This is a reflection on what actually works when organizations try to change at scale, particularly during moments of acquisition, preparation for sale/the sale itself, or enterprise-wide reinvention.

Transformation Happens at Inflection Points

Most meaningful transformations don’t start from a place of comfort. They begin at inflection points:

  1. Rapid growth that strains people and infrastructure
  2. Business downturns driven by market shifts, customer loss, competition, or product and technology disruption
  3. Acquisitions that require integrating cultures, platforms, and operating models
  4. Founder-led or privately held businesses preparing for institutional ownership or exit

Transformation, in these moments, is not optional. But how leaders approach it determines whether value is created, barely moves, or is destroyed.

Transformation Fails When Follow-Through Fades

The most common breakdown I’ve seen is not strategy or execution, it’s conviction.

Many leaders say they want transformation. Far fewer are clear about how much disruption, investment, or organizational change they’re truly willing to not only tolerate, but actually implement. 

When buy-in fades or isn’t clear, teams sense it immediately and deprioritize this change.  Real transformation requires hard conversations:  Over time, I’ve learned to push early on some key questions:

  1. Are we aligned on the strategy and priority shifts?
  2. How much are we willing to invest, and for how long?
  3. How much control will you delegate?
  4. What people, processes, or structures are truly on the table?
  5. What risks are you actually willing to take?

When those questions aren’t answered honestly, and executed consistently with support, the work eventually stalls. Transformation fails most often when leaders change their appetite for discomfort halfway through the journey.

Buy-In is Built Early, or Not at All

In every successful transformation I’ve been part of, buy-in was deliberately built before the plan was perfect.  The plan was also simple enough to be repeated relentlessly.

Successful transformations start by engaging multiple layers of the organization early:

  1. Executive leadership and functional leaders
  2. High-impact individual contributors
  3. The veterans. The newcomers.
  4. A good sample across the organization

Listening matters, not because every concern should override the strategy, but because understanding resistance helps shape execution.

  1. Interview teams across functions
  2. Develop themes
  3. Pressure-test assumptions

Buy-in doesn’t mean consensus. It means people understand where you’re going, why it matters, and how their role changes.

Simplicity is Not Optional

Translate strategy into language people could actually act on. The most effective initiatives I’ve led shared common traits:

  1. A focused number of strategic themes
  2. Clear priorities with an understanding of what needs to be deprioritized
  3. Measurable work plans tied to accountability

And these plans showed up everywhere…

  1. Weekly and bi-weekly one-on-ones
  2. Team meetings
  3. Quarterly town halls
  4. Board and investor updates

If a strategy cannot survive repetition across all levels of the organization, it is too complex.  I’ve seen capable teams fail not because they lacked talent, but because leadership asked them to do too much at once.

Execution is a System, Not a Speech

Transformation doesn’t happen in strategy sessions or kickoff meetings. It happens in operating cadence with…

  1. Clear owners and KPIs aligned to the strategy
  2. Transparency around progress and setbacks
  3. Questions, conversations and debates all focused on how to move priorities forward, together
  4. Willingness to course-correct quickly
  5. Continuous reinforcement across leaders, teams, markets and functions
  6. Celebrating wins

Resistance never fully disappears. What changes is how it’s managed, through clarity, data, and consistency.

Where Transformations Go Off the Rails

After decades, the failure patterns are familiar:

  1. Leaders, sponsors, founders, or boards that initially support the plan, then change funding, timing, or tolerance for disruption
  2. Lack of hard conversations and difficult decisions
  3. Lack of transparency with employees, starting at the time of hire and continuing throughout the transformation
  4. Failure to consistently prioritize and reinforce the strategy

None of these issues are mysterious. They become fatal only when leaders avoid addressing them directly.  The cost of ambiguity is always higher than the cost of clarity.

Final Thought

Transformation is about doing the hard, often uncomfortable work, consistently.  Say what you’re willing to change. Be explicit about trade-offs. Keep the plan simple enough to repeat and reinforce it relentlessly through execution.  Week after week, quarter after quarter, that’s how value is created.

CoStar’s Roll-Up of the Rental Marketplace and the Branding of Apartments.com

February 28, 2023

Overview

I have been wanting to look at CoStar’s progress in the Rental Marketplace for quite some time.  I spent nearly 15 years of my career helping to transform companies (marketplaces, DaaS businesses, and other property tech) providing services to owners and managers of rental properties.  Most of it was spent at RentPath which is now Rent. and used to be part of Primedia’s Consumer Source Division.  I have seen Rental Marketplaces evolve from generating leads from print books picked up outside of Blockbuster and Kroger to Apartments.com spending $100M annually to build a brand kicked off with a Super Bowl commercial.  I understood fully that the long game would be won by focusing on the consumer and becoming the go-to branded site in the space.  This is easier said than done.  This article reviews what CoStar has done over the past eight years looking at acquisitions, incubated businesses, and some other key announcements.  It provides a baseline of where they began, what they did, where they are now, and some thoughts about what may happen next.           

Select Acquisitions/Key Announcements

  1. Apartments.com Acquisition, March 2014
  2. Apartments.com Release of New Site, February 2015
  3. Apartment Finder Acquisition, April 2015
  4. New Ad Campaign (Super Bowl commercial), February 2016 
  5. Westside Rentals Acquisition, February 2017
  6. Apartamentos Launch, February 2017
  7. ForRent Acquisition, September 2017
  8. OffCampus Partners Acquisition, June 2019
  9. CitySnap Launch, June 2022
  10. Listing of the Future Announcement, June 2022
  11. Entering Canada ($600M TAM)*, February 2023

*Not covered in this article

Not all of the numbers are public, but my estimate is they acquired approximately $300M in revenue and $75M in EBITDA with the above acquisitions.  Where are they now?  In 2022, the Multifamily segment generated over $745M in revenue which is 2.5x the estimated acquired revenue.  My EBITDA estimate is $224M based on an assumed margin of 30%.  This is my best guess given it is not public.  This is 3x the estimated acquired EBITDA. They likely also spent approximately $1.2B on all these acquisitions (smaller transaction values aren’t public, but the vast majority was shared).  

The Multifamily business is over ⅓ of their revenue and was the fastest growing segment in 4Q2022 (~16.5%) with vacancy rates and resulting budgets increasing. Multifamily revenue was 745M (~10% YoY growth) for CYE 2022.  Multifamily is also expected to be the fastest-growing segment in 2023.  CoStar trades right now at approximately 12x forward revenue and 14x LTM revenue.   To keep it simple, at 10X LTM revenue the Multifamily segment would be worth $7.5B.  We can debate the stand-alone value and related multiple, but it has had the fastest growth recently and the highest projected revenue growth rate for 2023.  

Overall, CoStar has sustained growth, they execute and they are or often become the leader in their segments.  Stated simply, they have more than recouped their acquisition cost, brand spend, and content investment for Apartments.com and in the Multifamily segment. 

Some applicable topics to the Multifamily segment and Apartments.com’s growth that seem obvious now: 

  1. Win the consumer and win the long game 
  2. If you do what is best for the consumer the advertiser/customer benefits too
  3. Acquirors learn much from due diligence and the acquisitions get cheaper as the sellers see the wave coming
  4. Bet big on one site unless the sites serve different segments.  This doesn’t mean you immediately have to get rid of/redirect other sites.  SEO shelf space is important. 
  5. Don’t let concerns about Google SEO penalties, specifically duplicate content, stop you from doing what is best for the consumer  
  6. Branding campaigns are expensive and require a long-term commitment
  7. A long-term view with short-term financial pain while investing in branding and content is much more palatable when you are well-capitalized

Let’s review these acquisitions/key announcements.  The first four are covered more in-depth. 

1. Apartments.com Acquisition

  • Key benefits
    • Nationwide Listings and Branding Foundation – Acquired one of the largest rental marketplaces at the time which provided nationwide property listings and a great domain.  This was important given they needed to acquire the most content possible and an easy-to-brand domain for the looming advertising campaign. 
    • Good Base of Organic Traffic
      • Head terms (broad, high volume, and commonly used earlier in the search process) – Apartments.com was still very competitive in large urban markets given it was previously owned by a newspaper conglomerate with a strong presence in big cities.  Additionally, the domain Apartments.com helped support prominent search results for head terms.    
      • Long-tail terms (more specific, lower volume and commonly used later in the search process) – Apartments.com still had a long-tail presence too.  ApartmentHomeLiving (still maintains a separate domain) and Rental Homes Plus (domain is redirected and single family listing content rolled into Apartments.com) were acquired too. The combination of the sites helped support long-tail SEO searches.
    • First Company Acquired in Roll-Up Process  – Created a foundation of future site bundling, clients, and associated expenses.  This allowed them to realize revenue and expense synergies with future acquisitions.  The diligence and integration process also helped them learn about current competitors as well as the potential future growth strategies in the Industry.  They could see the strengths and weaknesses of the current competitive set and where the consumer experience needed to go in the future.
  • Other questions, thoughts, and opportunities
    • Consumer Experience – The overall consumer experience on Apartments.com and in the Industry was still lacking.  It was built more for the advertisers to drive exposure and quantity of leads vs more qualified, higher converting leads (closer to a lease).  The experience had come a long way since the days of print but still needed to be vastly improved.
    • Nationwide Listing Coverage – They had a great start, but there were still gaps in certain large cities (LA + NY) and in mid-sized markets.

2. Apartments.com New Site

  • Key benefits
    • Becoming an Industry Leading Site – This had to be a priority with an initial $100M advertising campaign.  You don’t want to spend this type of money and have a poor consumer experience.  The site was built with a quantity and quality of listings focused on generating leads that are better converted to leases.  This started to cement Apartments.com as the industry-leading site with the renter perhaps not having to look for rentals anywhere else.  What was different….
      • Quantity of Listings (more listings all on one site) – Leveraged the CoStar multifamily database and created a site with more than 680,000 rental options.  If your branding campaign is focused on one site you need content.
      • Quality of Listings (actual availability and rents) – Stated 1 million calls made per month to update available units, rents, and other fees, while also checking approximately 40,000 apartment websites each day.  This meant that consumers didn’t have to call or email for actual rents, see what units were open, check on pet policy/fees, etc.  These inquiries in the past and likely even now are counted as leads.  Plus this further-up-the-funnel interaction wastes the time of the already stretched onsite people.   
      • Return the Best Results based on the Search Criteria of the Consumer  
        • Default to Map-Based Search – They led with a map-based site.  This was a simple indicator that they were leaning into a consumer-first philosophy.  The vast majority of sites up to this point gave the option of map-based results but didn’t lead/default to this with some exceptions on mobile.  This made sense given mobile was already the consumer screen of choice (generally ⅔ of traffic is mobile now).
        • Impact on Advertisers – Often, across other sites listings were forced on consumers so the highest paying advertisers/customers received the most exposure and often leads, even if there was a low chance of a lease conversion. In the short term by leaning in on the consumer, Apartments.com had a risk of diluting the leads generated to advertisers especially those in the highest paying tiers.  Long term, Apartments.com paid spend on both their brand and SEM lifted the entire pool of leads which could help offset some quantity dilution to higher paying customers.  Their choice of putting the consumer first benefited the advertiser with better-converting traffic.  By the time an on-site property manager picks up the phone or responds to an email, the prospective renter should be further down the funnel and ultimately more qualified. Renters should not have to call to get current unit availability, parking fees, pet fees, or the actual price of the unit they want.   
  • Other questions, thoughts, and opportunities
    • Evolution of the Value Equation – The original advertiser pitch was focused on exposure, it then moved to leads (connected calls and emails) and now it is moving towards leases.  
    • Consumer First – Doing what is best for the consumer ultimately creates more value for the customer (less time spent dealing with unqualified leads).
    • Multiple Sites and Duplicate Content – By investing so much in Apartments.com, what would happen to the other current and yet-to-be-acquired sites?  Would their listings all be put on Apartments.com?  What about duplicate listing content?  Would Google penalize this?  Would this eliminate the value of the SEO shelf space they acquired (fewer products at eye level on the grocery store shelf)?  Hard to guess what Google is going to do. I will touch on this later.

3. Apartment Finder Acquisition 

  • Key benefits
    • Listing Content – Given their base of listings, there would be an overlap of listing content, but the foundation of ApartmentFinder was as a print publication which had its benefits.  Print publications generally had a good presence in mid-tier markets which likely allowed them to pick up new listing content since Apartments.com generally had more of a historical presence in larger urban areas.
    • Synergies Given Existing Foundation – Apartments.com now had the ability to generate both expense and revenue synergies.  They could eliminate redundant roles and also bundle sites in each sale.  This was most valuable where advertisers didn’t already buy from both sites.  
    • Not as Expensive to Acquire – The overall acquisition was cheaper.  Many secondary sites were already struggling, saw the consolidation coming, and became more motivated to sell.
    • Leverage their Ad Spend – More sites provided Apartments.com the ability to leverage their brand and other paid spend to generate traffic, leads, and ultimately leases given the conversion opportunities a broader base of listings created.
    • SEO Shelf Space – Additional site on the first page of many search results.  More shelf space.
    • Data – I will cover this in the future, but consumer activity/searches in any given defined area (market, city, zip code, etc.) is valuable.  
  • Other questions/opportunities
    • Bundling –  What was the result of advertisers that already purchased both sites?  Revenue erosion?  Perhaps in the short term, but given the marketing spend and additional sites yet to be acquired (additional leads/leases + another low-cost competitor eliminated) the value provided could ultimately support price gains.  This could only happen with a longer-term view of becoming the dominant player in the Industry.
    • Duplicate Content – This was always a debate.  Would Google penalize sites for having duplicate listing content?  This kept many companies from consolidating listings onto one site.  It is very difficult to determine what goes into the Google algorithm and how it changes.  Instead of trying to determine this, focus on what you can control.  If you do what is best for the consumer they will engage.  Better engagement should equal better SEO results and also support the ability to build trust with the consumer and build a brand. 
    • Site Investment / SEO Shelf Space
      • A Multiple Site Strategy Creates Questions – Do you keep them?  What is the expense/distraction to maintain them?  Do customers really see the value in bundling them together?  Look at the Vacation Rentals Space.  Austin Ventures rolled up various vacation rental sites (VRBO, Vacation Rentals, etc.) and even ran a super bowl commercial (sound familiar?), but branded it HomeAway instead of picking an acquired domain.  They still kept the distinct sites and maintained SEO shelf space.  Ultimately, they shifted back to VRBO and ran Super Bowl commercials to kick that off too.  The other domains are now all redirected to VRBO.  The SEO shelf space of multiple sites wasn’t worth the expense/distraction given not only the branding but the strength of the VRBO domain.  They focused on consolidating content and branding VRBO to create the go-to-site (besides AirBnB which VRBO is very publically trying to differentiate themselves from in various advertisements).  There are also additional pricing/business model lessons that the Rentals space can learn from the Vacation Rentals Space.  
      • What will CoStar do with all of its Multifamily Sites? They already branded their leading domain, but have yet to redirect all of their various sites to Apartments.com.  They are likely continuously evaluating the value of bundling/related revenue and SEO shelf space vs. the expense/distraction of maintaining multiple sites.  Unless there is a specific targeted segment or geography (think Apartmentos or CitySnap – discussed later) with a unique consumer experience it is more difficult to justify keeping distinct sites especially given the focused investment in a site of choice.  Before they consolidate sites, they also have to consider truly how much they have branded the space and positioned Apartments.com as the only site needed. This leads us to our next topic.  

4. New Ad Campaign

  • Key benefits
    • Branding the Space  – Speaking from experience, Rent. (formerly RentPath) had tried to do this with Rent.com, but with a different budget.  CoStar went two feet into a campaign kicking it off with a Super Bowl commercial and $100M plus in annual spend.  This level of commitment made it very difficult for other competitors to even consider branding their own sites.  It essentially blocked any future attempts. 
    • Lower Reliance on Google – All sites in the Rental Marketplace up to this point were extremely dependent on SEO and SEM both on Google (> 80% share).  Branding a site with a memorable domain is a way to mitigate some of this reliance.  The question remains how to measure the branding impact.  Direct traffic?  Email marketing campaigns create direct traffic and some rental marketplace models rely on this heavily.  How much does branding help with SEO and SEM conversion too?  Hard to measure.  Metrics are convoluted here.  Regardless of these metrics, Apartments.com has created another meaningful source of traffic from TV and streaming video and audio.  They are number one in the space as far as unaided brand awareness.  Plus if you simply look at overall traffic, they are 4 to 5x bigger than everyone else.  This has a long-term value from both a consumer and customer perspective.  It is also much better than spending one-off money on paid spend or relying too much on organic traffic to generate leads/leases for advertisers.  It is difficult to leave the vast majority of your traffic to Google, it hasn’t gotten any cheaper and it doesn’t build a long-term controllable asset.      
    • Created both Consumer and Advertising Value – We have talked about the consumer value created, but this campaign was also about letting property owners and managers know that Apartments.com was going after the space in a big way.  Jeff Goldblum likely initially resonated more with the buyers of advertising vs. the renter population.  They had a new site with a big Superbowl splash.  The salespeople definitely had something to talk about.
  • Other questions/opportunities
    • Have they moved the needle? How much more is enough?
      • With their organic revenue growth ($300M acquired revenue to $750M) and overall traffic being 4x to 5x bigger than everyone else, the big picture answer is yes.  They also lead the industry in unaided brand awareness.  They have moved the needle and truly differentiated themselves as the leading player.  Yes, they have paid for it, but the increase in valuation more than covers this expense.
      • How much is enough?  They can only answer this.  With resale home sites and rental sites being purchased by the same company (Rent. and Redfin / CoStar owning Apartments.com, Homes.com, and perhaps Realtor -yes, this is off the table for now), this spend will likely not slow down any time soon.  Pending additional consolidation and individual companies owning both the renter and homeowner experience, the spend could increase.    

5. Westside Rentals Acquisition

  • Key benefits
    • Provided Immediate Leading Position in LA to Leverage Ad Spend – With their nationwide advertising campaign, it was key to gain access to the approximately 1M renters in LA plus additional renters close to LA too.
    • Acquired City-Specific Listing Content – In LA, the consumer/prospective renter originally had to pay to gain access to listings.  Now it looks like the Site allows you to see all the listings free of charge.  Additionally, my assumption is that these listings are now on Apartments.com too.
    • Local and National Sales Impact + Expense Synergies – They now had a better product to pitch locally and nationally to large owners/managers of properties that also had an LA presence.

6. Apartmentos Launch

  • Key benefits
    • Access to Large/Growing Consumer Segment – Nothing meaningful to acquire so starting their own site was the best option.
    • Leverage Ad Spend – Now they have site experience and listings to leverage a national ad campaign + other paid spend.
    • Local and National Sales Impact – Provided sales teams with a new site to sell.

7. ForRent Acquisition

  • Key benefits
    • Listing Content – Definitely hitting overlap in listing content with their 2nd bolt-on acquisition to Apartments.com, but consolidates another long-time industry player.
    • Synergies Given Existing Foundation – Easier to generate both expense and revenue synergies.
    • Not as Expensive to Buy – More pressure on existing players to sell given consolidation in the space and the enormous ad spend shown by Apartments.com.  Additionally, the financial results of ForRent and other industry players were being impacted.  Apartments.com was taking share (sales and consumer eyeballs) and more traffic had to be purchased at higher rates to maintain leads.
    • Spend – Brand/paid spend to a broader base of listings plus less of an opportunity for prospective renters to click on a non-CoStar site.  
    • SEO Shelf Space – Additional site on the first page of many search results.  More shelf space.
    • Data – Additional collection of consumer activity/searches in any given defined area (market, city, zip code, etc.).  

8. OffCampus Acquisition

  • Key benefits
    • College Segments – If you are going to spend money on branding the space you need to have a product for the youngest demographic and build brand loyalty early.  This was the best available.  
    • Launching Pad for Other Universities – With CoStar’s resources behind this Site, adding more markets, increasing consumer traffic, and generating additional revenue should be easier.  It just depends on how much it is prioritized vs. other opportunities.

9. CitySnap Launch

  • Key benefits
    • Significant NYC Presence – Partnered with the real estate board of NY to put together CitySnap.  Pitch is designed by New Yorkers, for New York City including distance to nearby subway stations and need-to-know details on the buildings in which each listing is located.  My estimate is roughly 7k listings.  As with LA and the acquisition of Westside Rentals, it was key to gain access to the approximately 5M+ renters in NYC.
    • Both Rentals and Resale Listings on one Site – Put residential rentals and properties for sale on one site.  With agents representing both rentals and properties for sale and with NYC consumers sometimes investigating both options simultaneously, it was important to have both listing types on one site.  CoStar may also develop some insight here on how both renters and buyers reach and actively consider both options on one site.  With big plays in both rentals and resale properties, understanding this in the most active and demanding market (NYC) could develop a playbook for the future.   
    • Head to Head with Zillow + Homes Marketplace Crossover – CoStar already owns Homes.com and Homesnap.com so it is clear they are focused on Resi (new TAM to support multiples) and going head to head with Zillow.  They were also in talks to buy Realtor, but backed out.  Launching CitySnap now puts them in direct competition with Zillow’s StreetEasy.  The “Your Listing, Your Lead” statement promising that all leads from listings in Citysnap will go directly to the listing broker or agent, differs from some of Zillow’s advertising products.  Zillow sells advertising to buyers’ agents that aren’t typically educated on the property.  They don’t know the property or represent it.  This is not an ideal consumer experience which CoStar wants to fix.  Again, the long-term view of the space by focusing on the consumer. It is more difficult to make this adjustment once your revenue model becomes meaningfully dependent on it. 

10. Listing of the Future Announcement

  • Key benefits
    • There are many implications to unit-level listings that the Rental Industry should be thinking about…
      • Renting out units Airbnb style – The more unit content created the easier it is to rent out your unit to someone else.
      • Paid spend – Advertising/buying keywords for both entire properties and now apartment units. Spend can get more tactical.
      • Search engine optimization – Both organic unit results and property results.  
      • Industry pricing and changes to rental marketplace business models – There are significant implications based on unit-level listings. 
    • Other questions/opportunities
      • This is great news for consumers of digital marketplaces, but for owners and managers of properties, these changes will likely impact the unit of value (leads vs. leases) and their advertising costs.
      • For more see the article posted on January 23, 2023 (Rental Industry – Impact of Per Unit Listings)

If you would like to learn more, please contact me at rsternot@steadvisors.com.

About STE Advisors

STE Advisors helps companies prioritize organic and inorganic value creation opportunities and then executes against these activities. Frequently, organizations are too busy managing the day to day to take a step back, put together/confirm the big picture, and have the bandwidth to execute against the initiatives that could drive the most value. STE Advisors partners with companies to:

1) Develop/confirm the strategic plan, the execution plan and related KPIs.

2) Quarterback the execution with team members inside your organization pushing key initiatives forward.

3) Work with you to continuously enhance the value of your business. 

STE has provided these services to family-owned, founder-led, public, and private equity/venture-backed organizations primarily with less than $300M in revenue.

STE has helped in sprints to capital raising, company transactions, growth initiatives and organizational transformations.

Rental Marketplaces – Impact of Per Unit Listings

January 23, 2023

https://www.costargroup.com/costar-news/details/apartments.com-announces-new-listing-of-the-future

Catching up with Rental Industry announcements and this caught my eye. The ability to see apartment unit level details has been talked about for years, but not executed against. Prospective renters could check their views, understand where their unit is in the overall property and see what the unit looks like from the inside without ever touring the property. This is available when buying a house. Why not a rental? I remember renting my first apartment sight unseen when we moved from Cleveland to Chicago. We got into the unit and looked out the window. It was overlooking the garbage dumpster. Wasn’t a good experience, but they did let us move to a different apartment. It would be fantastic to see apartment marketplaces and property websites adopt unit listings. There are many other implications to unit level listings that the Rental Industry should be thinking about…

1) Renting out units Airbnb style – The more unit content created the easier it is to rent out your unit to someone else.

2) Paid spend – Advertising/buying keywords for both entire properties and now apartment units. Spend can get more tactical.

3) Search engine optimization – Both organic unit results and property results.  

4) Industry pricing and changes to rental marketplace business models – There are significant implications based on unit level listings. 

This is great news for consumers, for digital marketplaces, but for owners and managers of properties these changes will likely impact their advertising costs.

https://www.yahoo.com/now/apartments-com-announces-listing-future-201100260.html

If you would like to learn more, please contact me at rsternot@steadvisors.com.

About STE Advisors

STE Advisors helps companies prioritize organic and inorganic value creation opportunities and then executes against these activities. Frequently, organizations are too busy managing the day to day to take a step back, put together/confirm the big picture, and have the bandwidth to execute against the initiatives that could drive the most value. STE Advisors partners with companies to:

1) Develop/confirm the strategic plan, the execution plan and related KPIs.

2) Quarterback the execution with team members inside your organization pushing key initiatives forward.

3) Work with you to continuously enhance the value of your business. 

STE has provided these services to family-owned, founder-led, public, and private equity/venture-backed organizations primarily with less than $300M in revenue.

STE has helped in sprints to capital raising, company transactions, growth initiatives and organizational transformations.

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