Unlocking Value: Buyer Synergies in HOA/Condo Management

Introduction

The "price" quoted by each of a buyer and a seller in an HOA/condo management transaction is often not the same figure, especially when quoted as an EBITDA multiple. Why? Certain buyer synergies can significantly alter the price paid by a buyer. Let's do an example

Buyer Synergies Explained

HOA management Company A has conducted a limited (proprietary) sell-side process and has received an offer from its only bidder, Buyer Q, for $6.5M, based on the below last twelve months financial performance and other considerations (conversations with owner, diligence meetings). In the course of its diligence, Buyer Q has identified several areas in which it expects to generate value in Company A's business beyond what is currently being generated, while also taking into account that it does expect some portfolio management contract churn after the transaction closes. Buyer Q expects to lose 5% of portfolio management fees in a transition period, but also expects to realize some material benefits. Company A's management contract is fairly weak compared to its peers and as such certain terms in the base management fee and Schedule A can be enhanced to market terms. Buyer Q estimates that the portfolio contracts that don't churn should generate

+10% in Management Fees

+20% in Association Fees

+20% in Transfer and Escrow Fees

+30% when Software Reimbursement terms meet those of Buyer Q (are folded into their agreement)

Buyer Q also runs an insurance services business and expects that it will generate $50k of commissions in the first year post-close of the transaction, offset by $25k of commissions paid out to staff.

The changes mentioned above result in a significant alteration to the perceived multiple. Company A expects to be paid 6.0x EBITDA or $6.5M / $1.08M. When Buyer Q factors in its buyer synergies mentioned above, it is paying $6.5M / $1.5M or 4.4x EBITDA. While the buyer synergies will not be immediate, as the change in terms will likely require client HOA board consent over time, they represent a significant opportunity for Buyer Q to pay a below-market multiple for Company A.

Summary

Ideally Company A's financial advisor will have (1) identified such weaknesses in the contract and (2) run a confidential sell-side process that provides for bidding tension. A process can therefore narrow the multiple range between what Company A is receiving and Buyer Q is bidding, generating value for Company A's shareholder(s).

For more information on the HOA management industry, valuation metrics, or other questions, please contact contact@camadvisors.co or visit camadvisors.co.