CoStar Group's CEO Andy Florance has revealed that the US commercial real estate firm failed in its bid to buy bankrupt rental portal operator RentPath in December because the FDC considered that arch-rival Zillow was too weak in the rentals industry to constitute sufficient competition.
In a lively and insightful earnings call discussing a Q4 earnings report in which CoStar reported record revenues, Florance spoke in his customary candid manner about several topics including his company's mooted acquisition of data company CoreLogic as well as the details around the failed bid for RentPath which ended up costing nearly $60 million in fees.
CoStar has been trying to buy fellow publicly traded real estate data company CoreLogic for some but was initially beaten to the punch by a $6 billion bid from Stone Point Capital and Insight Partners. Not to take defeat lying down, CoStar came back last week with a letter to CoreLogic shareholders offering to pay almost $7 billion for the company. Florance was clear to CoStar shareholders and analysts on the call about what value CoStar Group could bring if chosen as the ultimate buyer:
"CoStar Group provides commercial real estate solutions and CoreLogic provides residential solutions... And while the solutions that CoStar Group and CoreLogic provide are completely different, both companies invest heavily in very similar underlying technology processes that collect and create real estate information including property data photographs, drone imagery, maps, aerials, market analytics and analytic models."
While all of the salient information around the CoreLogic bid may be out in the open, relatively little was known around exactly why CoStar's $587 million deal for RentPath really fell through. According to Florance, the details behind the deal did not only involve CoStar, RentPath and the FTC, but also residential portal operator Zillow and an unnamed "household name Internet giant":
"The inflection point for us came down to our learning of a non-public rumor that a household name Internet giant shared their plans to launch a marketing solution that would be more directly competitive with both us and RentPath. While the giant intended to partner with us, they would clearly provide a potential competitive alternative. We felt in the face of the giant entering this space, it was unlikely that the [FTC] would find that RentPath stand-alone represented any material or significant competitive impact, hence we felt the deal was likely to clear.”
If the spectre of an internet giant entering the real estate marketing game wasn't interesting enough, Florance then threw shade on Zillow:
"However, during the process, the giant drew significant antitrust scrutiny of their own. And we have reason to believe that in conversations with the government, the giant pledged not to enter our space. As a result, three things happened. One, the giant did not enter our space, which is really good news. Secondly, the antitrust analysis and acquisition of RentPath shifted out of our favor which was bad news. Third, in the [FTC’s] opinion, they stated that their investigation concluded that Zillow was not an effective competitor to Apartments.com which we enjoyed.”
CoStar is definitely out to shake up the residential property landscape in the United States in 2021 having already purchased Homesnap and the homes.com domain, and apparently but for FTC intervention, one of the titans of the internet would have been as well. We'll leave readers to speculate as to which of the big silicon valley companies was being referred to...