Compass sent shockwaves across the industry

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Compass sent shockwaves across the industry

Compass sent shockwaves across the industry when it announced its massive acquisition deal for @properties and Christie’s International Real Estate.

The deal is less the cherry on top of this year, and more another heaping spoonful of ice cream for Compass, which hit a number of financial and strategic milestones in 2024.

Compass has been cash-flow positive in all three quarters this year, watching its coffers grow from $167 million to $211 million. It also had its first profitable quarter, bringing in nearly $21 million in the second quarter of this year.

Now, the company is putting its dollars to use, shelling out roughly $150 million in cash and $294 million in stock for @properties, Christie’s International Realty and its affiliated firms. The deal gives Compass its first-ever access to international markets and affiliate programs, and secures it a now-dominant position in markets like Chicago and Atlanta.

“It was a brilliant move,” Finley Hair, national director of M&A Advisory at WAV Group. “It is probably going to go down as the deal of the decade for real estate.”

In addition to the cash from the deal, the @properties ownership team will get 44 million shares in Compass, making the group the fourth-largest shareholder in the company, according to Simply Wall Street.

The stock in the deal won’t all accrue to @properties founders Thad Wong and Mike Golden. In 2018, the pair took an investment from private equity firm Quad-C Partners, which likely will not be a long-term shareholder in the publicly traded company.

The brokerage has been subject to a shift in ownership in the last year. CEO Robert Reffkin has been steadily decreasing his company holdings; he’s now sold roughly 6.7 million shares — or roughly $39 million — this year, either personally or through affiliated trusts. The company’s largest shareholder, Softbank, sold 7.5 million shares in September, likely as part of its goal to get below 10 percent ownership in its public investments.

To fund the cash portion of the deal, Compass will be drawing on its cash balance and its $350 million revolver while maintaining a cash position above whatever it draws on its revolver, CFO Kalani Reelitz said on an investor call.

The deal is expected to close in early 2025, typically a lower cash-generating period for the company (in the first quarter of 2024, Compass produced $8.6 million in free cash flow).

Reelitz said paying down the revolver will be a top priority, but it remains to be seen when that will happen. Compass expects to pay another roughly $29 million in antitrust settlement payments in the second quarter, when the company usually produces its most cash.

Brighter times ahead

It will also be a wait-and-see approach for understanding if Compass can hit its post-synergy transaction multiple — a measure of a company’s value divided by its earnings — of five to six times adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization.