Real Estate Tech M&A “Quiet”: Capstone
The real estate technology sector has seen strong demand as service providers have increasingly relied on sector participants’ technology offerings to drive new revenue opportunities, make data-driven decisions, boost operational efficiency, and enhance customer experience, according to Capstone Partners, a middle market investment banking firm, in its September 2023 Real Estate Technology Market Update.
While there has been a minor increase in M&A and fundraising activity in 2023, dealmaking has remained quiet and will likely remain so until 2024.
Management teams and shareholders have mainly been conservative and cautious in terms of deal involvement, as they continue to develop business models and go-to-market strategies, rebalance to a new valuation and financing environment, and refocus M&A priorities.
To date, deal activity has been driven more by enterprises in need of financing or looking for distressed exits than by sellers who see the market as favorable.
According to the study, M&A activity in the real estate technology industry is significantly lower than the 2021 peak and continues notably in line with 2022 lows, with transaction volume increasing by about 4% year on year.
Most deals completed in 2022 occurred in the early months, but the past few months have been the busiest – possibly indicating that deal activity is recovering.
“We expect M&A and capital raising activity to intensify in the coming quarters,” said Taylor Woodson, Capstone managing director and the lead contributor in the report.
The study indicated that strategic buyers have driven a higher portion of transaction activity this year, completing 66.7% of deals, as financial sponsors avoided putting resources in the sector.
Average M&A transaction multiples in the sector have declined from prior year peaks but continue to outperform the larger fintech industry.
Sector financing activity has decreased year on year as many early-stage companies were hesitant to price fresh investment rounds at reduced valuations, and investors have remained wary of new opportunities, preferring to engage in extra fundraising rounds for existing holdings.