Compass’s Anywhere deal raises questions about industry power shifts

For Anywhere Real Estate, news of its acquisition by Compass, generated quite a bit of interest in its stock, thanks to the excitement of what this deal means for the future of the company. 

The real estate conglomerate saw its stock price rise from $7 at close of market on Friday to over $11 at 9:30 Monday morning. As of midday Tuesday, Anywhere’s stock was trading for roughly $10.31 per share.

In contrast, Compass’s stock fell from $9.40 at close of market on Friday to a low of $7.76 late morning on Tuesday. According to experts, the drop in Compass’s stock price is primarily due to it assuming roughly $2.6 billion in debt as part of the acquisition. 

Although the drop in stock price is not good news for investors, Ryan Tomasello, the managing director of Keefe, Bruyette, and Woods (KBW), sees reasons to be excited about this all-stock deal. 

“I think Anywhere’s willingness to accept consideration in the form of 100% stock is a vote of confidence in the belief that this will be a successful deal for Compass and allow them to drive attractive returns in their share price, based on various components of their strategy,” Tomasello said.  

The math tells the story

While the future of the housing market still remains uncertain, analysts agree that the deal gives Compass a lot of leverage, which may enable it to create more favorable conditions as it looks to offset some of the debt it has acquired. 

Wall Street investors see plenty to like in Compass’s all-stock acquisition of Anywhere Real Estate. As Steve Murray, senior advisor to HousingWire and founder of real estate consulting firm RTC Consulting, explained, the math tells the story.

“I just did an analysis last week of the eight large national publicly held real estate enterprises and looked at their forecasted cash flows for this year against their current market cap,” he said. “It’s interesting to note that Anywhere was the lowest price…3.2 times projected 2025 cash flow.”

For context, he pointed out, “the next one is RE/MAX trading at six. Still, relative to all the others, the median of the eight was like 17. Compass was on Friday about 19.6.”

That spread between Compass and Anywhere set up what Murray calls an “ideal” scenario: “They’re trading a stock price that was trading at 19 times cash flow and buying the shares of a company trading at 3.2.”

In other words, Compass used a high-multiple stock to scoop up a low-multiple competitor. “The price they paid moved it up to six because it was about double what the price was last Friday for Anywhere, which is a very good premium,” Murray added.

How will Compass leverage its scale for a private listing network?

“Something the MLSs and any other existing stronghold in the industry has to consider is the extent to which Compass decides to leverage their new scale to influence structural change in the industry or resist change that it doesn’t agree with,” Tomasello said. 

Additionally, Tomasello noted that barring any massive departures from Anywhere or Anywhere affiliated franchises, Compass has also added a meaningful number of agents who are heavily involved in the MLSs, as well as Realtors associations on the state, local and national levels. 

“I don’t see this as a positive for anyone betting on the MLS continuing to maintain or increase its dominance over the industry,” Tomasello said. 

Much of his belief in this can be attributed to Compass’s push to become a hub for real estate listings, as it looks to grow its stable of private exclusive listings. These listings are only available on Compass’s website and not on the MLS or sites powered by MLS data feeds. 

“Compass’s off-MLS marketing strategy now has the potential to be three times larger, and I think that is going to force other industry participants who have historically been against private listings to revisit that idea,” Tomasello said. 

It’s important to note that Anywhere has a substantial number of franchises and those operate independently and can’t be compelled to implement Compass’s off-market strategy. However, they may choose to do so.

With the threat of even more listings being withheld from the MLS, both Tomasello and Ramirez believe other brokerages, both those privately and publicly held, will be taking a hard look at their game plan. 

“Everyone woke up on Monday and saw their biggest competitor had just tripled in size, so I think the natural question is, how will these brokerages respond in terms of looking at ways in which they can also participate in consolidation,” Tomasello said. 

Murray agrees with this.

“If I am a small or medium-size broker I’m definitely having some internal conversations and trying to figure out how I want to handle this, but I know I probably need to at least create some kind of network,” Murray said. 

While analysts and shareholders may have their own expectations of what is to come, Tomasello says to keep in mind that assuming this deal closes, the real estate industry will find itself in uncharted territory. 

“This will create a unique dynamic in the brokerage industry that I don’t believe has ever really existed before, where you have a player in as dominant of a position with the type of market share that Compass would have, at least on a pro forma basis,” Tomasello said. “The brokerages have always held power in the industry, but especially with a brokerage as outspoken and trailblazing as Compass, the influence they will now have over NAR and the MLS system should not be overlooked.”