Real Estate Technology M&A Update – December 2024

Property Transaction Stalemate Constricts Real Estate Technology M&A

Capstone’s latest Real Estate Technology M&A Update reports that the Real Estate Technology space has continued to experience significant headwinds from an elevated interest rate environment, a gridlocked U.S. Real Estate market, and recent disruptive legal actions. Despite headwinds, the Real Estate Technology sector has witnessed strong demand as service providers have increasingly relied on participants’ technology offerings to drive new revenue opportunities and bolster operational efficiency. Sector merger and acquisition (M&A) activity has remained relatively flat year to date (YTD) and will likely not experience a full rebound until further interest rate cuts materialize and property transaction activity increases.

Real Estate Technology M&A volume has reached 92 transactions announced or completed YTD, marking a year-over-year (YOY) uptick of just seven deals. While deal flow to date has mirrored the prior year period, M&A activity has remained dampened compared to historical levels. This has largely been driven by overall lethargic dealmaking activity, especially within the Technology space, as well as an elevated interest rate environment hindering property sales volume as sellers have been reluctant to mark down their assets and buyers have been unwilling to overpay for properties. However, banks, lenders, and real estate agencies have increasingly taken advantage of the Real Estate market downturn to review technology stacks—leaning on sector participants’ offerings to improve efficiency. As a result, strategic buyers have continued to drive the vast majority (68.5%) of Real Estate Technology M&A deals to date. Private strategics have remained the most active buyer type YTD, comprising 46.7% of sector transactions. Financial acquirers have accounted for 31.5% of deals YTD—mirroring buyer activity composition in YTD 2023.

The Real Estate Technology segment has continued to drive sector transaction activity, with targets in this segment comprising 80.4% of deals YTD. M&A targets in the Mortgage Technology segment have remained on pace with YTD 2023 levels, accounting for 19.6% of sector targets to date. An elevated interest rate environment has hampered M&A activity in the Mortgage Technology segment, as declining mortgage issuance has resulted in declining revenues and significant margin compression for many participants.

Growth investors, including venture capital and private equity, have increasingly pursued later-stage financing rounds in the Real Estate Technology sector to ensure a return on investment as early-stage startup valuations normalize. The broader Venture Capital market has undoubtedly entered a period of correction, which has continued to dampen sector participants’ ability to raise capital. This correction has largely driven by a “growth at all costs” mindset during COVID-19, in which many venture capital firms increased valuations to accommodate for elevated, and ultimately unsustainable, growth forecasts. While capital raising levels will likely not meet 2021’s peak, Capstone expects a rebound in Real Estate Technology sector financing as valuations continue to normalize.

Also included in this report:

• How the National Association of Realtors’ joint settlement agreement has impacted the Services and Technology verticals of the Real Estate market.
• A breakdown of Public Equity market performance and how this has created a healthy backdrop for sector M&A valuations.
• How Real Estate Technology M&A multiples have fared compared to the broader Financial Technology space.

Capstone Partners’ Financial Technology Investment Banking Team provides M&A, capital formation, and financial advisory services to the owners of middle market businesses in the Real Estate Technology sector. Our team partners with leading mid-to-large sized businesses that serve growing end-markets.

For more information on the Real Estate Technology M&A trends featured in this report or to speak with one of our Real Estate Technology M&A Team members about how to grow, value, and/or sell your company, we are here to help. Contact us today.