Multifamily M&A Returns After a Slow Start to 2023

After a lengthy slog, interest in dealmaking for multifamily companies has picked up considerably, according to a panel of apartment executives and analysts at the Blueprint conference this week in Las Vegas.

John Ensign, President, MRI Software, said he’s had about 15 deals put on his desk in the past six weeks after only getting about one per month during the rising inflation rate environment of the past year or so.

“The Fed’s rates took a lot of buyers out of the market,” he said.

Chris Gough, Managing Director, Houlihan Lokey, said 2023 has been a soft market with mergers and acquisitions off by about 65% to 70% year-over-year.

“Twelve months ago, things were at all-time highs, and then it all turned off,” Gough said.

“I’m optimistic for the next six to 12 months as it looks like the Fed might thread the needle on achieving a ‘soft landing’ for the economy.”

“There’s a lot of ‘dry powder’ in private equity, waiting to be deployed. Companies looking to acquire are using a tighter lens when looking at what is available. They are focusing on Tier 1 companies, not any ol’ business. They are looking for companies that fit their company culture.”

One company with its eyes open is Grace Hill, which is owned by private equity.

“We like to buy companies and we have money to spend,” said its CEO, Kendall Pretzer. “We look to acquire profitable companies or at least those that are on a path to profitability.

“We want to hear about their reasonable growth expectations and future growth assumptions. It’s important that companies are honest about their forecasts because if they aren’t, we’ll find out and we’ll begin to doubt other things they are telling us. These companies need to be ready to have this realistic conversation with us about their forecasts. 

“We’re looking for companies, for example, with expertise in a market we’re not serving. We look at their product, their tech, and their talent.”

For example, Pretzer said she’d like to find additional products to sell to Grace Hill’s commercial division customers.

Arnold Brier, SVP, General Counsel, Yardi, said his company tends to acquire technology more often than revenue. 

“Right now, prices are not as inflated as 2021, but they are still pretty high.

Ensign said the market is in the process of deciding what prices are fair.

“We need a deal or two to take place to give us some comps to look at,” he said.

Brier said when Yardi does buy companies, it typically will invest more in that company to help it keep innovating.