September 12, 2023: Two transactions are better than one

What is the news?

As we mentioned on Thursday we expect the last quarter of the year to be filled with acquisition news.

Last week it was Clearpath Robotics, this week it is Properly.

Over the weekend, Properly's founders posted on social media that it had entered two different transactions for the company.

What were the transactions?

The first transaction was that Compass, a US-based tech-enabled real estate broker, acquired the business of Properly.

The second transaction involved the sale of the Canadian brokerage and search portal to an undisclosed Canadian real estate innovator.

Why did the company enter two transactions?

The duty of Properly's Board is to ensure it maximizes the cash return for its shareholders. Apparently, the company was more valuable being sold in pieces than as one entity.

Why was Properly sold?

Properly’s original vision was to be the Canadian OpenDoor and they had an amazing founding team.

From launch, investors backed the plan and the company executed by developing its model for the Canadian market. In particular, the company looked like it had product market fit, even in Covid times. As the tech market and the Canadian real estate market cooled, tailwinds became headwinds. The company’s valuation seemed rich, their business model no longer made sense and they pivoted to a digitally enabled brokerage. This made it difficult for them to raise additional funds and the board hired an investor banker to review strategic alternatives.

Why did each buyer purchase what they did?

Let’s start with the simpler transaction first.

The Canadian innovator purchased technology and a license to operate a brokerage. They most likely want to use these to vertically integrate Properly's offering into theirs to offer a more comprehensive package than what they have now and benefit from any traffic associated with the search portal. It will be interesting to see who purchased this.

Compass, however, is less clear.

On one hand, it may be for geographic expansion into Canada. They get the brand and maybe some traffic (not clear if the search portal is the source of traffic), some other technology, and a tax loss they can harvest. But if this is the case, it is interesting they did not purchase the brokerage and search portal. Maybe they want the team?

Was this a win for Properly stakeholders?

Unclear what stakeholders received for these two transactions but given the way the deal was announced and the fact that Compass did not have to report the acquisition, the amount paid upfront is most likely not a huge win for the people involved.

What can the community take from this?

The Properly team swung for the fences and tried to change a massive industry. It looked like they had succeeded but the one-two punch of a change in the real estate market and tech valuations, unfortunately, knocked them out.

It is hard to see as the team had several unique products, built a brand, and was going for scale. Hopefully, the founders and team take their experience and use it to build a bigger and better company.

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