6 Questions to Ask Before Swallowing a Competitor

Now's the time to put your eagle eye to work in search of competitors who need a lifeline in the form of a merger or acquisition.

April 1, 2009

Ask yourself these six questions before scooping up another company.

1. Do we think alike? It’s very difficult to have a happy union between two companies that don’t share the same business philosophy. "If yours is a full-service brokerage, and the company you’re looking at doesn’t embrace the full-service concept, the compatibility may not be there," explains Bruce Zipf, president and CEO of NRT LLC in Parsippany, N.J.

2. How do their associates stack up? "What’s the production caliber of the company’s first, second, third, and fourth quartile associates compared with yours?" Zipf asks. "That’s important because productivity ties into a company’s quality of service and reputation."

3. What does my counterpart want? "Most of the time, broker-owners who are selling their company want to either retire or go into sales," Zipf says. "But sometimes they want to continue to manage, and that’s an issue you have to work through because you may already have a good manager. You may have to say, ‘I know that’s what you want, but it’s not going to work here.’ The acquisitions that work best are those in which broker-owners are truly doing what they want to do. You want them to feel good and be advocates for you."

4. How do our service areas compare? "Assume you’re in Town A, and you’re looking to acquire a broker in Town B," Zipf says. "The Town B broker services Town A, but you also learn that it’s really servicing towns C, D, and E. You may not be equipped to service those areas, and your sales associates may not want to do business there, either."

5. Can our commission structures be matched? "What are your commission splits compared with those of the brokerage you’re acquiring?" Zipf asks. "Its top sales associates may pay only desk costs, but that may not be your model. If your splits are compatible, that makes the fold-in easier. If there’s a big disconnect, it’s going to be harder." The same rule applies to your fee structure with consumers. The more diverse the two models, the harder they’ll be to meld.

6. Will my reputation survive? "Every company has a reputation within its market and the brokerage community," Zipf says. You might risk diluting a stellar reputation by uniting with a company whose image doesn’t match up.