How would you decide to sell your MLS?

With the sale of REColorado and the move for MLSs to become more independent entities from their Shareholder Associations, many MLSs are starting to think about how much their organizations are worth and whether they would ever consider selling.  

While understanding your organization’s value is essential, making a well thought out decision to sell is far more complex. The smartest MLS leaders are preparing now—before an unsolicited offer lands on their desk.

Having a clear framework in place helps you evaluate opportunities objectively, rather than reacting under pressure. The following are the key questions your MLS should be ready to answer—long before a buyer comes knocking.

It’s a lot easier to carefully and thoughtfully discuss and plan what criteria would be acceptable BEFORE an unsolicited offer comes your way.  If your MLS has answered key questions about how the MLS would operate post-sale and how the new owner will take care of your MLS customers as well or better than you do today, then you will know what to ask for from a potential suitor.

Here are my recommendations of the topics an MLS can discuss and articulate long before a potential buyer comes knocking at your door:

• Governance – Who’s in Charge?   Would you want to maintain the same nominations and board election/appointment process you have today?  Would you want board members to be paid if a third-party company takes over?  Would you want board members to serve for longer terms?  Who would be a part of nominating and choosing board leadership? What control will the brokers in your market have about who serves on the board?  Who has the authority to remove someone from the board that is not representing the best interests of participating brokers?  How do you know those that are leading the company are qualified and clearly understand the nuances of the residential real estate industry? 

• Decision-making Authority?  Today, most MLSs have safeguards built in. The board cannot go rogue without some oversight or approval from their shareholder association(s). Some decisions even require a full subscriber vote before they can be ratified. If a private entity buys the MLS who will have the right to decide if the organization should merge with another organization, change the business model, or the philosophy/requirements for data quality and compliance, as an example?   

• Motivation: Profit vs. Purpose?   While many MLSs are for profit entities from a taxation perspective, they really do not chase ever-increasing revenues and profitability like “real” for profit companies do. They focus most on providing the most comprehensive suite of technologies, support and training they can and delivering the highest quality data to maximize marketing opportunities they can. Will your new owner maintain that philosophy, or will they look for ways to increase prices, or push upsells? 

• Will the new owner “Level the Playing Field”?   Many MLSs today carefully steer around the service offerings of their largest brokers to avoid “levelling the playing field.”  Some do not offer transaction management, for example, because their brokers have claimed that transaction management oversight technologies are clearly the purview of brokers only. Others have avoided offering or heavily promoting consumer-facing websites because brokers feel as though sites compete with their online marketing efforts. Will the new owner respect these carve-outs or will they ignore them and sell whatever they can sell, cutting in to brokers’ value proposition. 

• Fair Display Guidelines maintained?  When MLSs offer consumer-facing websites or mobile apps, they adhere to the Fair Display Guidelines. MLSs, unlike 3rd parties do not charge advertising dollars on their sites. Participating brokers are in control of all leads created by their listings.  A broker can decide if all the leads from their listings go to a centralized lead routing desk or if they are assigned to listing agents. If a for-profit entity buys your MLS, will they respect the hallowed principles of Fair Display Guidelines or will they turn the website into a revenue stream where they sell leads to the highest bidder?  

• Follow NAR Rules and Regulations?  While there is much debate these guys about whether to follow NAR MLS Rules and Regulations because they have led to very expensive settlements for $2 billion + brokerages, most MLSs today, even those that are privately owned adhere to NAR rules pretty closely. With a new entity not bound by NAR policy will they follow the traditional rules of operation, or will they invent their own?  Will they get buy-in from brokers or will they create rules that serve the best interests of their corporation?  

• What is the scope of services offered by the acquired MLS?  What if a potential suitor comes to you, but to pay for the acquisition they cut back the scope of technologies offered, cut back support hours/staff or scale back training significantly? What level of services, support and training are a “gotta have”?  Before you get into a reactionary mode when an offer comes your way, think about what you cannot live without. You may want to do a deep diver on engagement and appreciation of the services offered by fielding a customer engagement and satisfaction survey like the WAV Group Customer Experience Index – add ink hereto get a quantitative read on your organization’s biggest strengths and most appreciated services, support and training. 

Will they care about Technology Engagement?  How committed will the new owners be supporting users with effective and comprehensive training and marketing that helps every subscriber get the most out of their subscription? 

• Will they be transparent and continually chase improved Customer Satisfaction?  Today, many MLSs field customer satisfaction surveys like the WAV Group Customer Experience Index (add link) annually.  Progressive MLSs carefully examine and respond to suggestions from their customers and continually pursue improvement. Will the new company take customer satisfaction that seriously or will they simply provide services and not take the time to listen carefully and respond to the ever-changing needs of practitioners and their clients? 

• Will there be a good cultural match and will they maintain your staff?   Assuming the new entity will want to maintain your staff and your CEO, at least for a time, it’s important that you carefully examine the culture of the company acquiring you. Do you believe their corporate culture is aligned with yours?  Do you believe your staff will thrive with their leadership?  Many acquisitions that fail are borne out of a bad cultural match. It is also important to understand how much of the staff they will retain and what functions may be eliminated due to redundancies. 

• How/When will they pay the MLS?  Sometimes acquisitions have an “earn out” period – meaning that the organization does not get paid completely for several years. This approach is designed to ensure the current owners have an incentive to create a smooth transition and set up the company up for future success. Many brokerage acquisitions include these types of clauses. You must determine how and when the organization would get paid. For example, what if the deal includes an earn out, but the new owners decide to significantly change pricing or broker participation opportunities. Your brokers don’t respond well to the changes, and they move to a competitive neighboring MLS significantly reducing revenues. If you agree to an earn out clause, the value of what the shareholders get paid could be reduced significantly.  

Here’s another scenario: Sometimes companies get paid partially in cash and partially in stock of the company acquiring them. How/who would evaluate the mix of cash vs. stock and how would you determine if the value of the stock in the purchasing entity is a good bet for future growth? Without someone at your side that knows what you are willing to accept, you could sell the company for much less than it’s worth.

These are just a few of the criteria WAV Group suggests you examine. Selling a company successfully is a lot more complicated than you might think.

If you need help getting a baseline valuation of your MLS, we’re here to help. George Slusser, head of WAV Group’s M and A division has completed thousands of valuations for real estate organizations. Second, if you need help documenting the criteria under which a sale would be possible, Marilyn Wilson, Founder and CEO and head of our MLS Division can facilitate a process for you.