TMT Industry M&A Update Q3 2019

Q3 M&A Trends in TMT; Proptech is reinventing real estate

Philip J. Isom

Philip J. Isom

Principal, Global Head of M&A, KPMG Corporate Finance LLC

+1 312-665-1911

 

Proptech is reinventing real estate

Real estate companies have been slow to incorporate technology into their businesses, and as a result the manual, lengthy and costly practices established decades ago are still in practice today. Over the past few years, property technology (proptech) has significantly changed the real estate landscape giving consumers new ways to research, rent, buy and manage property.

These new, well-funded proptech businesses are using modern technology solutions such as the cloud, APIs, mobile-first and omni-channel to improve the consumer experience on the front end and create more efficient workflow and systems on the backend. The first phase of proptech digitized existing processes (e.g. APIs stitching together disparate systems) while newer businesses are going a step further by creating entirely new offerings like rent-to-own offerings instead of traditional mortgages and selling equity in a home rather than taking a home equity loan.

Venture capitalists have taken note of the disruptive nature of these businesses and their promise for the future, leading to a surge of VC funding. During the first half of 2019, VC funding in proptech hit $12.9 billion which is more than all of 20171. At same the time, incumbent businesses are also recognizing the potential of proptech and are looking to acquire or partner with these technology-first businesses as opposed to attempting to build these capabilities in house.


What’s driving the growth of proptech?

Consumer demand and technology innovation have led to the rapid growth of proptech. Given parallel advancements in removing friction from other industries such as transportation (Uber), hoteling (Airbnb), investing (Wealthfront), and meal delivery (Grubhub), consumers expect a similarly seamless and fluid experience regardless of the service or product they’re purchasing. In many cases, proptech creates convenient experiences, removes backend costs and expedites processes.

For example, digital mortgage startup Better.com claims its solution can close a typical mortgage 50 percent faster than the industry average (21 days vs. an industry average of 42 days)2. As a result, we’re not just seeing a shift from realtors to websites, but new offerings like Blend, a software that provides “one-tap” mortgage pre-approval and PadSplit, a co-living business that takes single family homes and converts them into multiple single-room units to rent with shared living spaces. Blend raised $130 million in funding3 earlier this year while PadSplit raised $4.6 million4.

Proptech startups continue to proliferate thanks to significant venture investment, and as a result, there is a significant degree of fragmentation across the sector, driving intense competition. Amid this competition for market share, some offerings are going to emerge as marketplace leaders and others that fall behind. This will inevitably lead to consolidation of the sector and attractive M&A opportunities.

M&A landscape is heating up

We’re starting to see this already – in the past few years, acquisitions of proptech companies has increased. Large incumbent real estate companies are adding proptech companies to their portfolios to compete in the changing landscape as they look to evolve their existing business. Quicken Loans’ parent company Rock Holdings acquired a majority stake in Lendeskwhich operates a proprietary, direct-to-lender, mortgage application network. At the same time, financial buyers are seeing the growth potential of this space as businesses are acquired. For example, ATTOM Data Solutions' acquisition by Lovell Minnick Partners was based on ATTOM’s robust library of property data APIs, lead gen capabilities and sophisticated data warehousing technology. These are reasons the business is well positioned for future success.

Through strategic M&A, incumbent businesses can leverage their size, distribution capabilities, and client footprint to scale proptech. This will drive revenue while helping businesses create consumer-centric experiences that align to their demands for affordability, convenient and personalized experiences across the broader real estate market. As we continue to see proptech businesses grow across the myriad of real estate sub-sectors, it’s becoming clear that the macro-real estate landscape is changing. More user-friendly solutions will continue to be developed as technology continues to advance and consumers gravitate towards real estate alternatives that better fit their financial and lifestyle goals. These businesses are also making the processes easier for the issuers of loans and mortgages, property managers and realtors as they remove manual processes and make backend processes more efficient.


 

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Technology Team

KPMG Corporate Finance LLC’s investment bankers have extensive Technology transaction and industry experience, which enables them to understand the industry- specific issues and challenges facing our clients.

Cyrus Lam

Cyrus Lam

Managing Director, KPMG Corporate Finance LLC

+1 212-872-5540
Alexander  Alden

Alexander Alden

Managing Director, KPMG Corporate Finance LLC

+1 415-963-5511
David Creamer

David Creamer

Managing Director, KPMG Corporate Finance LLC

+1 408-367-7064
John Paul Ditty

John Paul Ditty

Managing Director, KPMG Corporate Finance LLC

+1 408-367-3826
Mihir Jobalia

Mihir Jobalia

Managing Director, KPMG Corporate Finance LLC

+1 408-367-2850
Karan Jolly

Karan Jolly

Managing Director, KPMG Corporate Finance LLC

+1 312-665-2949
Roderick Moon

Roderick Moon

Managing Director, KPMG Corporate Finance LLC

+1 212-954-5834
Joseph Radecki

Joseph Radecki

Managing Director, KPMG Corporate Finance LLC

+1 312-665-4401

 

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