The Art of M&A: Striking the Right Balance Between Integration and Autonomy

EXP’s acquisition history

We've done a few deals. We haven't done a huge number. We've done some really small ones. They were really acquihires where we acquired a company for the talent and paid a bit of money for the acquisitions.

If I look at our first significant acquisition, it was a company called Verbella. It's a virtual world for work platform, a metaverse before the word metaverse was popularized by Mark Zuckerberg. But we bought that in 2018. 

In 2020, we did a couple more acquisitions. We bought Success Magazine, a 125 year old brand. And then we also bought a company around the same time, a small real estate search technology company. And then last year, around this time, we actually closed on the purchase of a company out of Toronto, Canada called Zoocasa and they were and still are a real estate search portal that was one time across Canada consolidated Toronto, and then now we're expanding across Canada and into the US. 

Those were our bigger acquisitions, but we've had some small ones, and when I say small, I'm talking like a million dollars or less. We're really more about bringing somebody in that had a small project that was their hobby project, but in order to get them over, we bought them and funded them to continue to work on their hobby project, but we really wanted them for this.

Reasons behind EXP’s acquisitions

We started EXP Realty in 2009. I'll give you a little of the history there. We ended up using a virtual world for a work platform called Teleplace. They'd raised some money, about 10 million or so in Silicon Valley. It was a startup to kind of provide this virtual world for work platforms. 

Within about a year or so, they ended up going out of business, and then we ended up using an open source version of their platform for a while. And then, we ended up pivoting to another platform, which ultimately went out of business as well. And what we recognized is that we were getting a ton of value for us in using these virtual world-for-work platforms, because we run just to give you a little context.

EXP Realty is the largest single real estate brokerage in the US, maybe the world as a single entity brokerage. Most real estate brokerages are franchises. You think about RE/MAX, Keller Williams, Coldwell Banker, et cetera. 

But as one brokerage, one owner, no franchise locations, we're the single largest in the country, maybe the world. And we operate without any physical offices at all. 

• How do we support a real estate brokerage to build an international platform, if we don't have physical offices? 
• And how do we make sure that our agents, brokers, and our staff are connected?

So we recognize that a virtual world for business solve for a sense of place.

• a place to go to work
• a place you could run into people where you can have water cooler conversations and you can actually feel like you're there. 

That was our way to solve that piece. We've been doing that for a long time. And when we've got a market cap that's in excess of 3 Billion dollars, but one of the reasons why we have that market cap is because we figured out a much lower cost to operate than any other real estate brokers out there. So we were getting tons and tons of enterprise value from using these platforms. 

The problem was that they couldn't charge enough to their other clients and create a SAS model where it actually made sense for these companies to stay in business. But 2018, when we bought Verbella, we recognized we were one of their single biggest customers by far. 

We were over 50% of their revenues. They were charging us what would be considered market rate SAS contract fees because they wanted to scale to multiple companies and multiple users and this and that. And so, the per user costs were 10, 15, 20 per user per month. You can think about it from that perspective and they couldn't get enough users on the platform.

Now, we were actually paying substantially less than that on a per user basis. But even so, we were the largest customer and we've determined that it made more sense for us to buy them to basically make sure they stayed in business so they could continue to provide us with enterprise value.

So that was our first one. It was really around not having to make continual pivots into different platforms as each one went out of business. And then we had to make a move to another one. So our first one was just to preserve our long-term trajectory as a company.

Our second one we did in 2021 was with a company called Showcase. And from what we wanted to do, we wanted to control our website from a search perspective, consumer search for homes. We were using 3rd-party software contracts to actually manage that, and we wanted to bring that service offering in-house where we could actually manage the consumer experience and how the leads are generated and how those get channeled to our agents.

We recognized that it was going to be a lot faster for us to build up that expertise by just buying a company and then having them pivot. So that was 3 or 4 Million dollars on that company, but it was actually higher in a lot of respects, and that we were really acquiring them for their skills and expertise to build out the infrastructure for our future websites.

This is just our experience. Other companies have different experiences, but our experience was we weren't really able to hire in the talent to do what we needed to do in a time frame that made sense, and then to ultimately deliver some sort of product in a reasonable period of time. It was one where it just made more sense to just acquire a team and just retask them on building out that infrastructure, so it was really a build versus buy. And we found that buying makes more sense. 

Acquiring Success Magazine 

The magazine was an interesting one. We, as a virtual real estate brokerage, one of the things that we wanted to do was put something physical in our agents’ hands that matched up with where their heads were at as salespeople, independent contractors out there, building their own businesses, so to speak. 

And so, Success Magazine, a good portion of successful real estate agents have at some point either picked up the magazine, subscribed to the magazine, listened to the CVs that were included in the magazine, et cetera, part of the personal development ecosystem that a lot of salespeople have been exposed to.

And so a number of years ago, somewhere around 2018 or so, I had an opportunity to actually start to ship the magazine with a wrap that had EXP on it to our agents and brokers. And we did that once every three months, originally, and then it went to once every two months. And it was just a way to stay in front of our agents with something that gave them a sense that we cared about them, that we wanted them to be successful.

We want to give them just things from just a mindset perspective. So it was a story that has repeated itself a couple of times, but we became the single largest customer of Success Magazine because our agent base had grown so much up through 2020. We were in the 15,000-ish agent range at that point, and so we're mailing these magazines to all of our agents, and I built a good personal relationship with the previous owner and then he wanted to sell.

And so I was like, well, this would be a really interesting magazine for us to own because we could then leverage that into more personal development, deliverables for our agents and brokers and actually start to build up other stuff in that ecosystem that could really help our agents.

So coaching and training fits really well into Success. We then also expanded, we thought about the idea of brand expansion. We thought that we could profile our most successful agents. We could create different things where the Success brand will endorse our top agents and brokers and again, give them a tool.

So that was the idea and that's how we've been building it out since we've added a coworking company to it. We've added a speakers bureau to it. We've expanded it a bit, but it is still an investment, but it is a nice asset to own as a sister company to our realty company because even our real estate agents see it as somewhat of a defensible moat. 

We have had people like Tony Robbins have been on the cover multiple times. We can actually go and get keynote speakers for EXP that might not be interested in doing things with EXP. But because of the success magazine tie in, we can sort of get them tied into our real estate ecosystem.

So it's kind of a A cool thing. 'cause anybody who's successful, they'd like to be on the cover of Success or Forbes or Inc or whatever. So it's a kind of a cool magazine to kind of bring other people into the ecosystem. 

Zoocasa was another tech play. We acquired  that last year. That was our last big acquisition. And what Zoocasa represented for us was a second brand that we could scale up to actually do lead generation, and then monetize those leads through our agent base and actually create another revenue stream. So it's really the one that's designed to be creative, the other ones were more to reinforce different parts of a value prop.

But in the case of Zoocasa, we actually bought it because they already had an existing lead generation platform that had matured primarily in the Greater Toronto Area (GTA), but they had at one time been owned by Rogers Communications. And Rogers invested over 10 million a year for multiple years in a row, just marketing and branding that property across all of Canada.

So, it was actually a well-recognized name in real estate in Canada. And so we see it as a great way to create leads for our agents through a portal that consumers already recognize in Canada. And then we've already got agents. We have 6,000 agents in Canada. We can give them another way to get new inbound business, and then we can actually monetize those leads.

Factors to consider when looking at potential targets

The one that's probably most important is cultural fit, meaning they want to be with us for the right reasons. And it's a lot easier in the case of Verbella, we were already their single biggest customer.

Even though we acquired them, it wasn't like we actually asked them to do anything different the next day or change their team up or any of that stuff because that was very much a known quantity. We didn't micromanage them, etc.

Zoocasa was similar. Showcase was similar. Success was different; we didn't initially have the cultural alignment in that because we were fundamentally not in that. It looks like the magazine business didn't quite understand it as well. It had been structured in a way that was structured for sale. 

Trying to actually do that business, that was probably the roughest conversion. That was because we really didn't have a continuity of leadership in that transition. Their previous CEO was the one selling the business and he wasn't staying on. He wanted out of that business and so we didn't truly have the expertise in-house or even on the team to run and scale that business. So that was a tougher acquisition. 

The brand is great. We were able to start leveraging that right away. But in terms of just figuring out what we do next and how we do that took us 2+ years, probably figuring out what we were going to do to actually work with the existing brand for success. 

The big thing for us is making sure that we've got a culturally aligned ecosystem. I'm certainly not trying to compare myself to Warren Buffett, but one of the things I like to do when we bring on a company is to leave the team intact and to allow them to continue to build, maybe with a slightly different focus than they previously were on. But the idea is not to bring them on and then micromanage them to an entirely different business than they were in. 

That's worked pretty well for Verbella and on Zoocasa, and it's worked reasonably well with the Showcase team. And that's because it came with the talent already in place and they wanted to be with us. 

We really like the idea of aligned autonomy. And so, obviously there's some payroll systems and some HR stuff that gets handled from a corporate perspective. There's some accounting stuff that needs to get done to match up with the accounting side. But the actual operation of the business, the decisions, the strategic initiatives, and all those types of things, we tend to believe that's the secret sauce that these teams bring in. And if we had the expertise in the house, we wouldn't need to acquire them.

So I don’t try to micromanage what they're working on. And in a virtual world for business, we're fundamentally a real estate brokerage. So there's certain things that we need the platform to do for us, but they're not unreasonable things or what any customer would need for the platform to be useful. 

So whether it be private sound regions or the ability to support more avatars or what have you, but those are just general requirements. We're actually a customer in some respects of a company that we own in house.

Understanding a company’s culture

I mentioned Success was one of them that we didn't really have a good sense of culture with. We were very much arm's length from all of the internal staff at success. And the acquisition opportunity came up, and there was a need from the owner to do a fairly quick close. So we didn't get a chance to really do a deep dive on the internal team dynamics.

And so it went from the time we met the internal team till the time we completed the acquisition was probably maybe 30 days, and then it was literally hands off from the previous CEO. He sort of helped for about 30 to 60 days. And then he was like, “I'm selling this for a reason that I'm going off to do my own stuff.”

But it worked out well. We've kept the magazine going. There's definitely been some hiccups along the way, but we've never met an issue. Always got the magazine out with big, great quality. And then in that whole process, we've added other products and services and turned over a lot of the team. And so now it's actually a much more culturally aligned team than it was when we first acquired them. 

If I was to go back and look at it, we were buying a brand and a history, and we wanted, obviously, the magazine to continue to be published, but I'm not sure what we would have done differently. If we would have had more time, it would have been good to get to know the team over the course of 6 months to a year in some casual manner.

As their single biggest customer, I could see that that made sense. But the other is just:

• understanding who's there and what's there 
• build some strategic alignment in the shorter run before we actually pull the trigger. 

That would make a lot more sense, because then we can actually have more of what I call a continuity of leadership. It's really important that teams come together around leaders and they adapt to that leadership style. They become quite comfortable and they have an affinity over time to that leadership style. 

And then when you change it, no matter what it is, it takes time to change that dynamic. And so, how do you do that? And so one of two things we could have done differently, it would have been to have that leader stay on for at least a year or two to help in the transition or us get involved a year prior with an idea of a future acquisition.

Reverse merger

We knew what we wanted to do as a company. We knew that we wanted to distribute equity to our agents and brokers. And so we made a couple really unique innovations in the residential real estate industry, maybe two for sure. We were the first company that basically wanted to build a nationwide platform that was entirely virtual. No physical offices, and we recognize that high speed Internet in 2009 was pretty ubiquitous.

We had 3G on our phone. We had cable in it, the internet in our homes for the most part, and the internet was just going to get faster and faster. This is a comparison to say 2002, where it was dial up Internet, and you had to go to an office to actually get a fractional T1 or a T1 or something at high speed.

High speed was reserved for the downtown office where the fiber had been run, et cetera. It really hadn't got out to the households, and if you had high speed Internet, it was an ISDN line. So that was the high speed back in the day. And so, because we had high speed Internet, we said, why do we need physical offices?

This is all stuff now we're talking about pretty much regularly. And now after COVID, companies can't even get their employees to go back to the office, because, fundamentally, working from home actually made more sense. And we said that that's the future because of what high speed internet is going to do. 

So we launched the company with this cloud based model, we innovated also around the way agents are compensated. So we took a page out of network marketing in terms of aligning around how agents can get compensated on not just their own personal production, but on the production of agents and brokers that they introduced to EXP and the agents and brokers that those agents introduced to EXP.

And so we've got what we refer to as a 7-level revenue share plan. So you can think about it as a 7-level network marketing comp plan, and that was pretty unique as well. And so between those 2 things, we had a lot of cost savings in, because we are fully virtual and able to pass on some of that savings in the form of an aligned compensation plan.

And then we wanted to actually have our agents be shareholders in the company. And we were hopeful that the jobs act, which was supposed to provide for more opportunities for unaccredited shareholders in a company. But the rules and regs around that just took a long time to actually mature, and we kind of gave up at the end of 2012.

We're saying we're not going to get to that, so what other way could we actually distribute equity to our agents? Well, at the time we were only 300 or so agents and were not doing a huge amount of revenue. It was 7, 15 million dollars a year in total revenue. We were way too small to be a public company through a traditional IPO process. 

We didn't want to raise money. We didn't want to give up a whole bunch of equity to the marketplace. And so I've been involved with a number of small public companies back in the late 80s, early 90s, and I said, we should buy a public company. 

I've been involved around public shells. And so I contacted a buddy of mine who had done a lot of things on public shells. And he agreed to help me find a shell. We found one, cleaned it up, and then we bought it for the single purpose of sharing equity with our agents and brokers. So that was the whole concept. And so, we went through that process. We bought the shell, we cleaned it up for the better part of about six or seven months.

Then we merged ourselves into it. And then we still cleaned it up for another, almost a year, because we still had some legacy shareholders in the public company that were not fundamentally bought into the new model. So we wanted to get them out and then at the end of 2014, we actually started to issue equity to our agents and brokers. 

2015 was like the 1st year we doubled in size. We went from 400 agents to over 800 agents, then we went from 800 to 2,400 and then 2,400 to 8,000. And so we went on this hockey stick curve and growth. And the reason why was a combination of the way we had structured our line compensation model and equity, nobody had offered equity in the residential real estate space to real estate agents before. 

And because we were actually giving our agents equity, just that single ingredient was huge for us. So there was some work we had to do. It probably cost us a little over a half a million dollars to actually become a public company. But at the end of the day, it was the best thing we could have done. It was the single biggest catalyst to our rapid growth as a company.

Capital structure evolution

In 2008 to 2009, I had a team-based brokerage, meaning that I had a real estate team and instead of affiliating with a real estate brokerage, which we had prior. In 2007, we were running a team inside of Keller Williams. We decided in late 2007, to separate from Keller, but run it as our own brokerage. 

And so we had a great 2007 and we had a great first half of 2008. Then in the second half of 2008, the housing market collapsed. We raised about 150,000. 75,000, we borrowed and 75,000 we took in sort of friends and family, and that got us into 2009. And then in 2009, we retooled the entire business and launched EXP Realty in October of 2009. So that was our big fundraising that we did. So it was just a friends and family round. 

When we bought the public company, we had some of our accredited agents and brokers accredited shareholders, where we gave them the opportunity to buy some of the equity necessary for us to buy the public company. In that, I think there were like 200,000 or 300,000 that they invested in, by helping us by the public company. 

And then after that, in 2018, we did another accredited round with some of our agents of brokers, where they were able to do a small private placement into EXP, but we never went out to institutions to raise money. But we've taken no institutional capital that we put directly into the treasury of the company. 

There were some fundamental reasons around that. I wanted this company to ultimately be totally aligned with our agents and brokers. And I felt like, when you go and you raise money, in a more traditional sense, whether you're public or not, those companies that put money directly into the treasury, they're going to want to have you answer more directly to them. And so we just resisted that. 

Now, we have a lot of institutions that own our stock now, but they bought it through the public market. We didn't “ask them to”, we didn't go and pitch the company to them. It showed up. We screened for the ingredients that they were looking for in a company and they bought and sold and did the various things that they do. And so we're just part of their marketplace of stocks they look at. But we're not beholden to them because they somehow helped us get to where we're at.

Managing relationships with the board of directors and shareholders

There's definite rites of passage for founder CEOs. And a lot of the founder CEOs don't make it through the rite of passage. They get eaten up on their path to where they ultimately want to go, but they don't have the experience, the fortitude crisis of competence, whatever.

To get through that and the challenges, when you start a company and you're a young entrepreneur and this is your baby, you haven't been exposed to the greater business world. Fortunately in my twenties and early thirties, I got exposed to actually a fair bit of what we'll call the challenges that come with companies, and the egos and the attempts by various folks to steer companies in certain different directions. Not fundamentally for the benefit of the company and its mission, but for the benefit of the shareholders on a short run basis to create a bump and get out and do those things. So I got exposed to a lot of that short term ism back then. 

Actually, in 1998, I wrote a business plan for a company called E-shippers.com. And in 1999, finally got in front of some folks that wanted to put some money into it. And in 2000, just before the dot com collapsed, we raised a small round, a million dollars, but it was on a Toronto Venture Exchange Company. And I ended up being a 25% shareholder in the company that I founded and I built a really great business plan. 

It actually still would have been successful, but the guy who put the money in said “he with the gold makes the rules.” And I bought into it. I was in my early 30s, and even though I was on the board, he formed the board, he put the money in and I didn't realize that he really was all about blowing up the stock.

So, he wanted to create this next party in front of stockbrokers who had promoted to their clients and then he wanted to sell a stock, et cetera. And so he wouldn't even write a check to put furniture in our offices.

And then I'd formed a relationship with a company in Fenton, Missouri, just outside of St. Louis, and they were offering us office space and they were a strategic partner. And he decided that we needed to locate in Phoenix, Arizona, because he liked to golf. 

So anyway, I had a really bad experience in that whole thing. So I actually didn't want to answer to shareholders and the board of directors. And I actually sort of made a religious decision. I'll never answer the shareholders on board of directors again. 

But obviously, in order to achieve the goals of what we were trying to do with EXP, there was a need to actually become a public company. I'm a board of directors, and ultimately our agents are shareholders, and then we've got shareholders on top of that.

So, I mentioned all that because as you're growing your company, you end up picking up the most pedigreed directors you can put in your company. That's part of the window dressing of the company, especially when you're trading on the over-the-counter market. 

And so we ended up going through that. And then I also wanted to bring on executives who were more tenured in the space than I was. And I ended up doing that and I literally had to fight off a quasi hostile takeover of the company. And I had to actually, basically get stock.

I collected enough stock to change the board mid cycle between shareholder meetings in order to ultimately redirect the company back in the direction that I thought was most important, which is creating a very agent-centric long-term, solving a big need for real estate agents in the industry.

And so I had to go through this whole process, but it was tough because I was the junior guy, I'm in my mid-forties as the first company that has reached any sort of thighs of this nature that I've been involved with. And then, I'm working with folks that have been CEOs or COOs of investment banks and have sold companies to hedge funds and have served in senior roles at major Fortune 50 companies. And then I'm the guy coming up and I haven't had that experience. I ended up having to fight my way through that, which if I didn't have the ability to do that through the shareholdings that I was able to pull together, I fundamentally would have lost control of the company.

Managing integration

It depends on what we're doing exactly in terms of integration. When we think about an acquihire, there is definitely a high degree of integration that we want to put in place. When we bought Showcase IDX, we wanted them to build out the whole ecosystem for basically our websites, and ultimately be able to channel those leads to our agents, et cetera.

And so, the integration is really the, we'll call it the API handoffs of some data between systems. But they chose their tech stack, they ran their tech stack, et cetera. So, a lot of the decisions were still done by that team, but there were certain sorts of what we call API type stuff. So there's definitely some tech integrations. 

Integration with our teams is really interesting when you take companies and you acquire them and they have a physical office, and then they're integrating with a cloud based real estate brokerage.

• What do you actually do?
• Where do you meet when you're used to physically meeting? 
• How do you engage with this company? 

Like, I'm up in the Pacific Northwest. I'm up in the furthest Northwest corner of Washington state before you get into Canada, and our chief strategy officer lives in Miami. Actually, our chief growth officer is down there as well.

The chief industry relations officer for EXP World Holdings, former CEO of EXP Realty, has been with me for 12 years now. And he lives in Boston, Massachusetts. Our CFO lives in Saratoga Springs, New York. Our chief legal counsel is in Salt Lake City, Utah, and we all work together really well.

Our chief marketing officer is in Toronto, Ontario, and then we've got 2000 other staff and we're all working in our virtual campus every day. So when we acquire a company, it's a bit of a process that's used to physically managing and getting together for their team meetings and people come in the office, et cetera.

And then we say, “Hey, we're going to do all these meetings in the world.” There is a bit of a shift and it takes a while to get them geared to that. I have to keep them coming back. The question with them is if you aren't going to get more bricks and mortar in order to scale, which, by the way, you're not in fact, you're going to have less bricks and mortar as we go forward. 

Think about: how do we scale without bricks and mortar? What is it that we do, whether whatever part of your business that you're working in. And I try to get them to rethink about that. This is really part of the business that they're trying to solve, how do you scale without physical offices? And if you can start to mentally get your brain around that, and that becomes actually part of the thing that you're trying to solve, then actually collaborating, working together, using tools like Google Meets, Verbella, we've got another platform called Frame BR that we're using, Zoom, Workplace, Messengers, Slack, whatever. 

It’s like you basically start to embrace this whole Communication and collaboration tool set and and it's the part that ff you get it right, it's a beautiful thing to watch. It takes a lot of work for people to buy into that “make work visible” culture, Trello boards, or Monday boards, or collaborative stand ups, and doing things in a virtual world. And all that sort of ties together. But once it comes together, it actually is actually a really neat thing to see work. But it does take work, and getting that integration and getting the cultural piece done. And that's the piece that's probably the tougher part of just what work looks like in a fully cloud based enterprise.

We've got over 2000 full-time staff and over 88,000 agents and brokers in 24 countries. We may actually be the largest fully remote company in the world. It depends on how you think about our independent contractors. 

But on our W2 staff, we've got over 2000 W2 staff with no physical office. And we're talking about every team that said you couldn't do it without being fully remote. And so our accounting team said, we got to have a place for the auditors to come and audit the books. So they held onto their offices for a long time. The marketing team, we got to be able to work together. So they held onto their offices for a while and we had each, it's like different little jobs or parts of the company that we try to hold on to. And I kept on getting rid of the bricks and mortar, and so now we have none.

The one that I think is going to be even more interesting in the world of AI, because right now, we want work to be visible so teams can actually see it and be part of it and know where stuff is and how to engage with it, et cetera. I'm really excited about how AI plays into all of this because I think it's going to be able to pick up where there's more transparency and effectiveness in remote teams, and be able to provide feedback to the C-suite or wherever as to where things are running the most smoothly in more real-time. 

It would give us a lesser lagging indicator, because if the work's visible and your AI can see it and they can see the communication and the collaboration and going along with it, it's going to be a really interesting catalyst to even more effectiveness as an organization in organizations that adopt this “make work visible” philosophy.

Other lessons and takeaways

Every entrepreneur has got to figure out what their true secret sauce, DNA, and repeatable systems are. And then, where do acquisitions fall into that? Some companies, obviously, their whole business is acquisitions and roll ups and that type of thing, and that's their business model. And so there's lots of acquisitions in those models.

Others are going to be looking at, what are key strategic things that they need to bring into their ecosystem that can continue to propel the mission of the company? Not so much. It's around skill and technology acquisition types of things. Some of it's going to be vertical integration type things, but I think it understands why you're doing acquisitions. 

I think that's the key. What is it that you're trying to solve? And make sure that you're really solving for something that has strategic importance long term. Don't do acquisitions for acquisition’s sake, because that's a cool thing to do.

We've been pretty fortunate in terms of our acquisition because we haven't had to try to take 2 big competitors and try to merge them into 1. We don't fundamentally buy real estate brokerages now. 

We did an announcement two weeks ago where we're actually offering monies to real estate brokerages of at least 50 agents or more to help them convert to EXP. And the economics actually look fairly similar to acquisition economics.

Meaning that if you were to sell your real estate brokerage to another real estate brokerage, you probably sell for what we're providing in terms of financial incentives to move your agents over. But we're basically putting on the front end a cultural questionnaire, and if they don't match up culturally, then we don't even go to the next stage, which is then figuring out what the transition dollars would be to convert their agents to EXP.

But since we put out that announcement, we have had hundreds of real estate brokers inquire about what this program is. And now, the job is to only bring those with cultural alignment, and that they're actually embracing what we're doing and they want to be here and they want to help us grow. As opposed to just those looking for an exit and basically wash their hands and then go their merry way.