Real estate brokerage Redfin has entered into a definitive agreement to acquire the rental industry media company RentPath in an all-cash transaction of $608 million. The deal has been approved by the board of directors of both companies and remains subject to the satisfaction of other regulatory requirements.
RentPath – Digital Media Company
RentPath, founded in 1989, stands as a leading digital media company for the rental industry. It owns online destinations including Rent.com, ApartmentGuide.com, and Rentals.com which attracted around 16 million visitors every month in 2020. The company simplifies the process of searching apartments for customers by connecting property-management companies with qualified potential customers. RentPath posted full-year revenue of $194 million in 2020.
Dhiren Fonseca Leadership
The company is currently driven by Dhiren Fonseca who was appointed as the interim president and CEO just before the CoStar transaction broke down two months ago. Fonseca has a vast history of working in different areas. He serves as an adviser to one of the private equity owners of RentPath, TPG.
He spent numerous years at the tech giant Microsoft where he worked alongside Rich Barton, CEO of Redfin’s rival Zillow. Fonseca and Barton worked on spinning out Expedia into an independent company in 1995. Dhiren then joined Expedia as Chief Commercial Officer where he served over 19 years. He is also a board member at Alaska Airlines.
Previously, in December, the Atlanta, Georgia-based RentPath agreed to be acquired by the commercial property company, CoStar Group. However, the transaction was terminated by a Federal Trade Commission lawsuit due to potential harm to customers resulting from the merger in the residential rental market.
The transaction, officially announced in February 2020 valuing RentPath at $588 million, came as the company entered Chapter 11 bankruptcy. Since the deal has now fallen apart, CoStar is pushing for a $60 million breakup fee owed by RentPath.
Redfin’s acquisition will remain contingent upon the FTC’s and bankruptcy court’s approval. Redfin CEO Glenn Kelman pointed out that he didn’t expect the same regulatory scrutiny that CoStar faced because Redfin is relatively fresh to the rental listing space.
Redfin – Technology Powered Real Estate Brokerage
Founded in 2004, Redfin stands as the number one nationwide brokerage search site. The technology-powered real estate brokerage uses a combination of local real estate agents and technology to provide easier, faster, and cheaper solutions for buying or selling a home.
While the Seattle, Washington-based company has established itself through home buying and selling services, it seems to have missed the attractive segment of apartment rentals in the home market. Acquiring RentPath marks Redfin’s largest acquisition to date. Ever since it was created, Redfin has only purchased one other company, Walk Score.
Under the transaction, Redfin will gain 700 employees on top of its existing 4,000 employees. Redfin posted revenue of $875 million for the trailing twelve months ended September 30, 2020.
Enhanced Consumer Experience
The merger will lead to a holistic experience for customers since its usual for customers to rent initially before eventually owning the home. Over a third of North American adults currently rent. This shows how important adding rentals is for Redfin. According to CEO Kelman, RentPath currently has over 20,000 apartments on its websites and boosted its traffic by over 25% last year.
With Redfin, that audience would be doubled because every one out of five Redfin’s 40+ million monthly visitors is looking for homes for rent. He pointed out that it would have taken four years for Redfin to build up the rentals inventory on its own. Moreover, the company faces tough competition in the market, and hence, buying was the perfect way to get a boost in the market. Redfin estimates to add RentPath’s rental listings on its platform in late 2022.
Rival Zillow Group
The transaction comes three days after Redfin’s competitor Zillow Group acquired ShowingTime for $500 million. Zillow also engages in the rental marketplace in addition to buying and selling homes. In Friday’s conference call, Kelman mentioned Zillow’s acquisition of StreetEasy in 2013 which gave it a big breakthrough into the lucrative New York rental market. Kelman said that New York would a difficult market for Redfin to break in and so they would likely focus elsewhere.
Redfin’s shares have doubled in the last year, giving the company a market value of $8.8 billion. RentPath and Redfin’s merger means a leading site for buying homes and a leading site for renting homes will come together, giving consumers a complete variety of options. The closing of the deal is not dependent upon financing.