Proptech Sector Will Face Growing Push for M&A
It’s a pattern long seen in high tech, as there are limits to how many technology companies can thrive in a fixed market.
There’s a certain point at which technology sectors reach a critical mass and start to coalesce through mergers and acquisitions. Proptech is on that cusp now.
Investment bank William Blair released a white paper titled “PropTech Sector Sees Growing M&A Interest as Macro Trends Reshape Real Estate Market.” Another way of putting it is that there’s enough business out there and enough money that people want to start scaling up and dominating spaces.
William Blair wrote that “technological innovation is shaping the real estate sector as investors and innovative companies seek to address all parts of the home-buying value chain and improve the experience of real estate agents, consumers, and every other constituent in the massive ecosystem (e.g., lenders, insurers, brokers, appraisers, title). William Blair has completed 12 M&A deals in the property technology (“PropTech”) sector in the past two years, totaling over $10 billion of deal volume.”
There are significant changes in the housing market that are driving it in ways unlike the past. Millennials are far behind where previous generations stood in terms of buying homes. “Comparing homeownership across generations, at age 30, millennial home ownership was 42% compared with 48% for Generation X and 51% for baby boomers,” the bank wrote. Baby boomers looking for vacation homes has become a significant dynamic. This has driven the number of all-cash purchases to 24% of all US home sales as of July 2022.
From finding property to financing to closing to managing the loan and ultimately to sell again, there’s a need for better processes, which means the real estate industry will have to give in and finally embrace, even if reluctantly, technology. Those who don’t will be left behind by their competitors. This means huge amounts of implementation of software and money to be made by the winners in scaling.
That also is a limited view as William Blair is primarily focused on the state of the consumer housing sector. The biggest money will more likely come from commercial real estate. The deals are massive in comparison, the amount of capital even available today is enormous, and professionals are keenly aware that they need an edge to make money.
The industry is already seeing the preliminary forces that presage consolidation. The biggest companies are putting money into startups they think have a chance of winning the scaling race. That’s true in every aspect. Even electric vehicle charging systems for offices, multifamily, and industrial have become a racetrack for dominance.
Expect more deals, more growth, and more investing by big firms that want to maximize their ability to dominate these new technical areas.