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I use the term consolidation not only to reference the buying and selling occurring with management companies themselves (although this trend is both significant and growing) but for other interconnected components of the community management industry that are less obvious: banks, software, service providers, etc. Understanding and awareness of this trend is important because, as with any major shift in an industry there will be individuals and businesses who recognize and embrace the positive changes this consolidation will bring, and there will be those who miss the cues and experience frustration, loss, and turmoil. There will be winners and losers – and none clearer than management companies themselves.
The proliferation of community management companies in the past 30 years has led to many management company owners approaching a stage in their life and career where they are facing a crucial decision: Do I sell my business? Leave it to my family? Should I consider an ESOP (Employee Stock Ownership Plan)? While all valid, the observable trend is that many owners choose to sell their management companies to larger (or growth-minded) competitors. There are many considerations for both buyers and sellers that will determine winners and losers, and we will see each on both sides of these transactions.
Winners:
Winners are buyers who put the right systems and relationships in place (software, bank partnership, management structure) and are ready to evaluate and capitalize on these unprecedented growth opportunities. These management company leaders will put into place systems that provide actionable analytics with greater transparency and visibility to achieve an increased understanding of the true costs and ROI of each potential acquisition, portfolio, and individual association.
Sellers who develop an actionable 2-4 year plan to sell their management company and maximize their returns. Shrewd operators will execute effective management agreements, upgrade/maintain their technology suite, and develop their portfolio and team into tangible, marketable assets. These individuals will systematically optimize their business processes, automating as much as possible through technology. These behaviors will make them more efficient in their delivery of management services and will result in higher value at the time of sale.
Losers:
Losers are buyers who grow only for growth’s sake and without the proper infrastructure, planning, and partnerships in place. Metaphorically, operators who add a second floor to their house without first addressing critical foundation issues are setting themselves up for failure at a grand scale.
Sellers who do so without the planning and discipline to execute well what for most is the most important transaction of their lives. Failure to maintain a strong management brand, modern software suite, and loyal client base will result in at best a lower valuation, and at worst the inability to sell when the time is right.
In conclusion, consolidation is undoubtedly coming, and for many, it is already here. The key for would-be-winners on either side of the equation is awareness. The actions and strategies executed today are what will define the winners and losers of tomorrow.
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