CoStar To Acquire Auction Platform Ten-X For $190M
CoStar Group is acquiring a digital auction platform that was founded during the Great Recession to liquidate distressed assets, just as the economy enters another downturn.
Founded in 2009, Ten-X began with a goal of providing a digital auction platform for the liquidation of distressed assets during the Great Recession. The platform has expanded to include non-distressed assets.
CoStar CEO Andy Florance told Bisnow Wednesday evening in an interview he has known Ten-X’s executives for years, but he called them just two weeks ago to begin discussions for the acquisition. He said his interest in acquiring the company is a direct response to the current economic crisis creating more distressed assets.
"We are in this COVID recession — hopefully it's just a recession — and it's clear there is going to be a lot of distressed real estate over the next four to five years," Florance said. "The question is: How can we be relevant and how can we help our brokerage customers and banking customers and GSEs deal with the volume of distressed properties that are likely coming?"
Florance said the acquisition price is roughly three times Ten-X's projected revenue this year. The deal taking place during the economic downturn had an upward effect on its price, he said, because the platform is countercyclical.
"If you go to the people who have the only digital transaction platform that has done a lot of deals and say 'Now that there is an economic crisis, we'd like to acquire this,' they don't go terribly cheap," Florance said.
Ten-X says nearly $24B in sales have been executed on its platform since its founding. Financial institutions including Fannie Mae, Bank of America, JPMorgan Chase, Blackstone, Starwood, Capital One and MetLife have used the platform for commercial property transactions.
CoStar can improve the Ten-X platform by widening its audience and bringing more bidders to the digital auction, Florance said. He said he watched a Ten-X auction last year and it became clear that successful execution is dependent on having a large amount of competition.
"What we don't have is a digital auction mechanism, and what they don't have is an audience," Florance said.
In addition to distressed asset auctions, CoStar plans to make the platform available to its clients for selling their stable, income-producing assets. He said CoStar will bring a global audience to the platform's auctions, as it has customers in 70 countries.
"We see significant demand for a one-stop-shop platform that provides solutions across the entire transaction continuum and we are delighted to combine our complementary capabilities and strengths with CoStar to meet that demand," Ten-X CEO Steve Jacobs said in a release.
The deal is the latest in a string of recent acquisitions for CoStar, which has bought more than 30 companies since Florance founded it in 1987. CoStar in June acquired online student housing marketplace Off Campus Partners, in October it paid $450M to acquire hotel research firm STR, and in February it agreed to buy RentPath out of bankruptcy for $588M.
Florance said on the company's Q1 earnings call last month that he is exploring multiple acquisition opportunities. Experts in the proptech space have said they foresee consolidation coming in the industry, especially as the economic crisis forces some companies to sell.
Ten-X is profitable and backed by private equity firm Thomas H. Lee Partners, Florance said, and it didn’t sell because it needed liquidity. But he said he does have his eye on some companies that have strong products but a weak balance sheet and are going to be coming up for sale at a discount. He expects CoStar will make one or two more acquisitions this year.
"Those other transactions will happen," Florance said. "They are good companies that their balance sheet just simply won't weather this storm. We're having conversation with those folks."