For over 37 years I have been a consultant to brokerage firms, MLS’s, Association of Realtors, and other entities related to the residential brokerage industry. In addition to general advisory consulting, I was involved in nearly 1,000 sales or acquisitions of entities in this industry.
In addition to my role as a consultant, I was editor of REAL Trends, reporting on the same industry. While I no longer am in the role of editor of REAL Trends, I remain active in reading about the industry, addressing industry groups about all the challenges in the market and am a Senior Advisor to REAL Trends and its parent company, HW Media.
Like many, I read with some interest the controversy surrounding the announced sale of REColorado, a Denver market area MLS, by its two shareholders to a private group. Having done some considerable consulting work for both associations and the predecessor to REColorado, knowing several of the board and leadership of all three organizations, and the fact that I live in the area, led me to having a meeting with the leadership of the two Associations, known as DMAR and SMDRA.
Here is what I learned.
The two shareholders own REColorado. They own all the stock of REColorado. As the sole shareholders they have control over and authority to appoint the Board of the Company. For their own reasons, based on their assessment of the future of the industry, they decided to sell their interests in REColorado. Without personally reviewing their shareholder agreements, I am assured they have the right to take this action.
They used an outside consultant to scan the market and produce potential investors or purchasers. In addition, they let the executives of REColorado also prepare their own bid to purchase the firm. During this process, the Company required the shareholders to sign confidentiality agreements prepared by the Company’s legal counsel. My understanding is that all executives and board members of REColorado executed such agreements, which in my world of M&A, such agreements are typical and are an absolute requirement in all transactions we work on at REAL Trends Consulting.
The leadership of DMAR and SMDRA determined at some point that the offer from a third party was measurably better than the offer put forth by insiders at REColorado and proceeded forward with the third-party bidder.
At this point some person, or persons, in the leadership of REColorado began sharing information that was covered under the confidentiality agreements. As I understand it, several board members voluntarily resigned. Due to other issues which arose at this time, the two shareholder associations voted unanimously to remove the remaining directors and the directors elected to remove several of the officers of REColorado.
Why any representatives of REColorado would think it was OK to breach their confidentiality agreements is hard to fathom. Breaches of this nature simply do not happen in our work doing mergers and acquisitions.
Follow up stories have hinted at nefarious behaviors as to the conduct of the leaders of DMAR and SMDRA, as to the identity of the purchaser and at the treatment of board members and/or executives of REColorado.
My own observation is that the shareholders decided to sell an asset, no different than any asset they may own, and proceeded to do so through the hiring of outside, non-related consultants and advisors, to accomplish this goal. As to the identity of the party under a Letter of Intent (LOI) I do not know them but am confident that the DMAR/SMDRA leadership will do the normal due diligence on them prior to concluding a sale.
As to the treatment of board members and executives who have separated from the Company, the shareholders shared with me that they intend to ensure the Company honors all their legal obligations and only expect the same in return.
Lastly, knowing these three organizations as I do, and some of the history behind them, it is not a surprise that any of this happened. There have been strains in the relationship between REColorado, DMAR and SMDRA, for many years. Why this is so I have little to offer as a way of explaining it. DMAR and SMDRA officials shared it has much to do with the changed climate due to the recent NAR litigation and they believe it is in the best interests of their respective organizations and their members.
Regardless, DMAR and SMDRA had the right to take this direction, they used outside assistance to do so and proceeded. While the sale of a Realtor — owned MLS is important news, the rest of what has been reported on is not.
Steve Murray is a Senior Advisor to HW Media and Co-Founder of REAL Trends.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the editor responsible for this piece: zeb@hwmedia.com
