M&A in the title industry? Don’t make these mistakes

M&A in the title industry? Don’t make these mistakes
As HousingWire reported earlier this year, 2021 will be a year of heightened M&A activity — and not just for mortgage lenders and originators. As the refinance wave gives way to a purchase market, consolidation is already upon us – even in the title industry.

This means that, after tremendously profitable years for many in the settlement services space, we’ll be seeing buyers building their market share via acquisition and sellers seeking to cash in at the top of their value. It has already started.

For those in the title industry seeking to build an M&A strategy, you probably already have a plan; perhaps a consultant and a (hopefully) great attorney or compliance consultant to handle the ins and outs of due diligence, valuation and the acquisition or merger itself. Even someone who’s done this before can always stand to have a little expert help when dealing with entities as complex as title companies in this regulatory scheme.

However, it’s surprising how much less planning some purchasing firms do when it comes to taking over existing businesses and integrating. When it comes to a new acquisition in the title industry (and pretty much any other industry), it’s often the bringing together of two different businesses smoothly that makes or breaks the transaction. There seem to be a few recurrent miscues that, if managed well, could help many of those seeking to grow through M&A.

No one executing an M&A strategy ever completely overlooks the fact that they’re bringing together two or more different cultures, production systems and ways of doing business. That’s pretty basic. But some occasionally do overlook, or don’t do enough due diligence about, several elements of the eventual integration.

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Whether you’ve just added a single office in the next county, or dozens of existing offices halfway across the country, you simply cannot spend too much time discovering how those offices have already been doing business — and how that will work with your existing culture.

To begin with, dive deep to understand existing — and potential — accounts payable arising from before the acquisition. For example, you may discover tens of thousands of dollars on a backlog of search invoices when you decide it’s time to change your search service provider. Be prepared to exercise your best negotiating skills — or get to know a great negotiator — if you don’t look into these things quickly.

Another very important thing to understand about the business being acquired is how the staff was managed previously. Some employees are used to simple, task-oriented workdays because the owner has his or her hands into every last element of the business. Others are used to having ownership over multiple tasks. If your workflow is modeled differently from the business coming on board, you’ll have some planning and work to do.

It’s also not rocket science to understand the need to review the technology stack (or lack thereof) supporting the business being acquired. But one particular challenge gets overlooked again and again. Specifically, assuming your production platform will eventually replace or absorb the acquiree’s system, know that you’ll probably need to keep at least one license current for that “legacy” system. Your existing and repeat clients will not be delighted when asked to provide all of their key information again simply because your tech has changed. That’s not their problem. And, unfortunately, there aren’t any obvious ways to extract that data from the system being retired. So count on that expense.

Another strategic mistake I see made often is the failure to adequately budget for the process of assimilating the new business or businesses. It’s understandable that, when expending a large sum just for the right to own the acquired business, many get extremely cost-conscious. But anyone seeking to grow by acquisition should be prepared to make qualified risks and smart investments.

You’ll probably need to invest in a lot of training, a lot of work on integrations and, likely, investment in upgrades. And if you value the employees of the firm that was purchased, you will want to invest in staff retention.

Jumping into the title industry’s version of the M&A world is one of the most exciting elements of the business. Someone is fulfilling a dream by “cashing in.” And the growing firm now has all the advantages of a larger footprint. Just remember that the merger or acquisition is just the starting point. It’s how you plan for and manage the integration of new offices into your overall business that really will make the difference.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:Aaron Davis at aaron@amd-1.com 

To contact the editor responsible for this story:Sarah Wheeler at swheeler@housingwire.com
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