Contact Us

CoStar To Look At New Sectors For Next Acquisitions After Failed Deals, FTC Scrutiny

CoStar Group has become a $32B commercial real estate data giant in large part through acquisitions, but that strategy has started to hit some obstacles.  

Over the last three months, CoStar has had two rare examples of high-profile acquisition pursuits falling through. One of the deals, its agreed-upon acquisition of RentPath, was blocked by a federal government antitrust lawsuit, while the second acquisition target, CoreLogic, publicly turned down CoStar’s $6.9B offer.

The failure to complete these acquisitions not only cost CoStar the time and money it spent working on the deals, it has exposed potential risks in its plan to grow, for which it has set aside billions to make new acquisitions.  

RentPath nixed CoStar Group's $588M acquisition as it faced a Federal Trade Commission complaint.

CoStar faces the risk of additional Federal Trade Commission actions if it tries to buy companies in commercial real estate data and apartment listings, where it is already dominant, and that risk could be compounded by the federal government pursuing a more aggressive antitrust approach under Democratic control.

“It is a risk. It makes it more difficult for them to acquire targets,” Morningstar Equity Analyst Yousuf Hafuda, who covers CoStar, said of the antitrust action. “I think the targets they’re looking to acquire will be more hesitant to be acquired by them. They will have to be more cautious.”  

Where CoStar is looking to grow into a new sector with less antitrust risk, such as the CoreLogic proposal, it faces the risk of founders not wanting to be acquired by the industry giant. And it also faces the risk of upsetting its brokerage clients — who rely on its data to function — if it pursues acquisition targets that they view as competitors.  

In an interview Monday, CoStar CEO Andy Florance told Bisnow he will continue to seek out new acquisitions as part of the company’s growth strategy, and he said there are many corners of proptech where CoStar hasn’t yet built a presence, giving it the ability to buy companies with less antitrust risk.  

But in sectors where it is already dominant, such as commercial property data and apartment listings, he said it is less likely to pursue acquisitions going forward.  

“We always think about it,” Florance said of antitrust risk. “We’re not going to go buy a company in a space in which we’re obviously direct competitors in an area where the FTC believes we have a lot of market share.”  

Acquisitions have been a driving force behind CoStar’s growth over the last 10 years. LoopNet and, companies that CoStar acquired in 2012 and 2014, respectively, now bring in significant portions of its revenue. CoStar has acquired more than 30 companies since its 1987 founding, including three deals that closed last year. The company has more than $3B in cash on hand and has said it plans to continue pursuing major acquisition deals this year to bolster its growth.  

CoStar’s stock price as of Tuesday morning stood at $843/share, down from its February peak, but still roughly 44% higher than where it stood one year ago. Its revenues rose 19% last year as the commercial real estate industry shifted toward online services during the coronavirus pandemic, continuing a rapid pace of growth for the company.

Its revenues have nearly doubled since 2016, and for the five years ending Dec. 31, CoStar’s stock price grew 496%.  

CoStar’s primary product, its subscription-based service that commercial real estate brokers use to find property data, comprised 40% of its $1.7B in revenue last year. But CoStar has used acquisitions to broaden its net across a wide swath of the real estate industry. Roughly 36% of its revenue last year came from its online multifamily marketplaces such as, and, three companies it has acquired over the last seven years.  

With its dominant position in those two sectors making further acquisitions more difficult, CoStar will likely turn down new avenues for its next round of purchases. The direction it turns will signal which sectors the industry giant sees as most promising for future growth, and it will have major implications for the thousands of proptech companies that could be potential targets.  

“They can’t keep going after multifamily and office,” said KP Reddy, founder of proptech venture capital firm Shadow Ventures. “They’re going to have to continue to find markets.”  

‘We Knew There Was Antitrust Risk There’  

Having two acquisition pursuits fail within three months of each other not only hurt CoStar’s short-term profits, it has exposed risks that could threaten CoStar’s growth trajectory going forward.

CoStar’s pursuit of RentPath represented a continued expansion into the online apartment marketplace sector. RentPath, which had filed for Chapter 11 bankruptcy just before agreeing to be acquired by CoStar in February 2020, operates multifamily listing websites and  

In November, the Federal Trade Commission filed suit in federal court to block the proposed merger. It said that the combination would eliminate the competition between CoStar and RentPath’s apartment listing websites that have kept rates low.  

RentPath terminated the deal in December and reached a deal in February to be acquired by Redfin.  

CoStar paid $59.5M between a termination fee and other costs associated with the RentPath deal, it said in its Q4 earnings release. The costs contributed to CoStar’s 2020 net income falling to $227M, below its 2019 level of $315M.  

The FTC’s complaint against the merger cited internal documents from CoStar in 2019 that said it launched a sales campaign to compete directly with RentPath for the business of its clients. The complaint also quoted documents from RentPath characterizing the effect of the transaction: “Prices will not stay the same, it will almost be a monopoly.”  

Janelle Filson Wrigley, a former FTC attorney who now leads the antitrust team for Thomson Reuters Practical Law, said those types of documents are often “a big red flag,” for the agency when it is making antitrust investigations. She said they were likely part of the reason the FTC moved to block the merger, in addition to the agency seeing that there weren’t other major competitors in the market.  

“They were putting forth a theory that these were the top two competitors in listings for large apartment complexes, and I imagine the merging parties probably had a different view of the market and were hoping to persuade the FTC that there’s a broader market and more competition than it appeared,” she said. “But in the end, I don’t think it was a particularly shocking case to get challenged.”  

Florance said CoStar and RentPath anticipated antitrust issues because the apartment listing websites they operated “absolutely did compete.”  

But he said the parties thought they might be able to avoid federal antitrust action because RentPath had filed for bankruptcy and had been unable to find other buyers to keep it in operation.  

“We knew there was antitrust risk there, but there was also a good chance the whole business just disappeared, so they’re not really helping competition if the competitor isn’t going to be around,” Florance said.  

The FTC action represented the second time the federal government has stepped in to block a CoStar acquisition. The first came with its 2012 deal to buy LoopNet, when the FTC forced it to spin off LoopNet subsidiary Xceligent to act as a competitor in the market. (Xceligent filed for bankruptcy and shut down in late 2017 after a pitched legal battle with CoStar.)  

Kasowitz Benson Torres partner Kevin Arquit, an antitrust specialist who worked with CoStar on the LoopNet transaction but not on the RentPath deal, said he wasn’t surprised by the more recent FTC action. He said he thought the government defined the apartment listing market narrowly, but he said the internal documents the FTC cited in its complaint made it clear the agency had a case.  

“The documents cited in the complaint, the RentPath documents, were among the worst I’ve ever seen,” Arquit said. “When you get documents like that, it’s not surprising to me that the government would work to try to develop a case.”  

Arquit said that because of CoStar’s size, it is going to continue to draw scrutiny from the FTC, but whether the government takes action on a proposed acquisition depends on whether the target is a competitor, whether there are other competitors in the market and whether it finds the types of documents it did in the RentPath case.  

“CoStar is a major player, and as a result, their transactions will always be noticed by a government regulatory agency, but in terms of whether the FTC ultimately determines to take action, it really is dependent on the particulars,” Arquit said.  

The FTC blocking the RentPath merger represents a sign that CoStar’s dominance of the apartment listing market has grown strong enough that it will have a difficult time making more acquisitions in that sector.  

“The challenge is, like you saw with RentPath, how do they continue to make acquisitions in this space that don’t trigger DOJ-type issues?” Reddy said. “They’ve reached a size where any move they make is going to be under scrutiny.”  

CoreLogic, a residential real estate data company, isn’t a direct competitor to one of CoStar’s business lines, but the threat of antitrust litigation still loomed large enough that CoreLogic cited it as one of the reasons why it turned down CoStar’s higher-value offer in favor of a sale to two private equity firms.  

CoStar’s Feb. 16 proposal to acquire CoreLogic would have valued it at $6.9B, nearly a full billion more than the all-cash deal CoreLogic reached with Stone Point Capital and Insight Partners. CoStar’s proposal included $6/share in cash, but the vast majority of its offer would still be subject to the company’s stock price, another risk that CoreLogic cited in rejecting the offer.  

During the evaluation process, CoreLogic asked CoStar for more assurances that antitrust risks wouldn’t prevent it from completing a potential merger, Reuters reported. Florance attempted to ease those concerns on the firm’s February earnings call, laying out an argument for why “there is no antitrust risk in this combination.”  

Ben Widlanski, an attorney at Kozyak Tropin & Throckmorton who has worked on antitrust cases, said the board of CoreLogic had an obligation to its investors to evaluate the antitrust risk of a potential merger, especially because it would leave them as shareholders of the merged company.  

“Their shareholders were going to be left owning some interest in the new company, and if the value would be threatened by potential antitrust activity in the future, they don’t know whether it would or not, but that’s a risk they have to consider before approving the merger,” Widlanski said.  

CoreLogic’s determination that a potential merger presented antitrust risk means it is likely that CoStar’s future acquisition targets could come to similar conclusions, Widlanski said.  

“If one company sees it as a risk, I have a hard time believing other companies wouldn’t also see it as a risk,” Widlanski said. “I could see why someone would be hesitant to do a stock merger.”  

After reading through all of the proposals and letters between the companies, Hafuda said he came away believing that CoStar’s acquisition offer was the superior proposal, and he was skeptical of the idea that the combination would present antitrust risk.  

“To put it bluntly, it seemed like CoreLogic did not want to be acquired by CoStar,” Hafuda said. “There are a few different issues being quoted, but I don’t think those substantiate the reasoning behind rejecting [CoStar’s] offer. In my opinion it was definitely superior.”  

‘People Just Don’t Like CoStar’  

Florance said he believes antitrust issues had nothing to do with CoreLogic’s decision to turn down its offer. He said CoStar gave CoreLogic all the assurances it needed on antitrust.  

“The CoreLogic management team and the CoreLogic board was not necessarily a willing participant in the process,” he said, adding that CoreLogic had fought off previous attempts to be acquired.  

CoStar CEO Andy Florance in the audience at a 2019 Bisnow event.

Florance said he thinks CoreLogic’s executives didn’t want to be acquired by CoStar because some of them would have lost their jobs.

“Most of the senior management team there might earn eight digits a year of compensation, and in a merger, especially a strategic merger, inevitably some of those jobs go away,” Florance said. “That’s a powerful motive to not do a deal.”  

While antitrust may not have been the driving force behind CoreLogic’s rejection, not wanting to be bought by CoStar is one that has the potential to arise in future acquisition attempts. And the company’s reputation in the industry may not help them on that front, Reddy said.  

“Honestly CoStar has not made a lot of friends,” Reddy said. “My sense from what I hear in the marketplace is people just don’t like CoStar, including their customers. So when that’s the case you’re always going to be under that much more scrutiny.”  

Meybohm Commercial Properties agent Jonathan Aceves, a commercial broker, told Bisnow in November that the industry largely has a negative opinion of CoStar.  

"CoStar is the only organization that I deal with that is widely hated by its customers," Aceves said. "You don’t talk to them. They will sell your data to you, and every time they acquire a competitor, they raise their prices.”  

This hesitation among acquisition targets means CoStar may have to pay a higher price to complete future deals, Hafuda said. But he said this is not going to stop CoStar from pursuing acquisitions, especially with billions of dollars in cash ready to deploy.  

“They’ll continue to pursue more acquisitions, that’s clearly one of the ways they’re trying to pursue growth,” Hafuda said. “But they’ll have to be a little more careful now because of the setbacks they have and the fact that those have been somewhat high-profile and folks are aware of them. I’m sure that’s a bit of a hindrance.”  

Part of the reason that CoStar and CoreLogic were unable to agree on whether a potential merger would have presented antitrust risk, Wrigley said, was because there is a larger level of uncertainty around the U.S. government’s antitrust approach going forward.  

“It speaks to the climate of uncertainty that exists right now around antitrust enforcement,” Wrigley said. “The fact that CoStar and CoreLogic couldn’t seem to agree on what the antitrust risks were and how to apportion those risks shows there is uncertainty.”  

The Current U.S. Antitrust Climate  

The federal government appears poised to take a more aggressive approach on antitrust issues under President Joe Biden’s administration, creating a fraught environment for companies like CoStar that are looking to use acquisitions to grow their already dominant market position.  

The political push for greater antitrust enforcement has centered around household name technology giants like Amazon, Google and Facebook, but experts say the government ramping up antitrust actions would also impact lesser-known companies like CoStar Group.  

The Federal Trade Commission's headquarters in Washington, D.C.

Biden has tapped two high-profile critics of big tech companies to positions that could shape the administration’s approach on antitrust enforcement.

He appointed Tim Wu to work on competition and technology policy on the National Economic Council, and Politico reported last week that he plans to pick Lina Khan to become one of the five FTC commissioners. Politico reported these picks signal that Biden “is poised to pursue an aggressive regulatory agenda when it comes to Amazon, Google, Facebook and other tech giants.”

The president still has one more FTC commissioner spot to fill, and he has yet to name a permanent chair for the agency. Wrigley said the type of person Biden picks for FTC chair will reveal how the administration plans to approach antitrust issues.  

“If he picks a real firebrand looking to mix things up, you could have more uncertainty around how aggressive antitrust enforcement is going to be,” Wrigley said. “If he makes a more traditional pick, maybe someone from a technology company or a law firm, you could probably see an increase in enforcement but not radical changes. That’s why that uncertainty is out there.” 

The calls for greater antitrust enforcement are also coming from Congress, with lawmakers from both parties pushing for greater actions against big tech.  

Sen. Amy Klobuchar, who ran for the 2020 Democratic presidential nomination, has put forward proposals that would add new civil fines for antitrust offenses and change legal standards to make it easier to challenge anticompetitive mergers and business practices, The Wall Street Journal reports. Republican senators, including Mike Lee from Utah and Josh Hawley from Missouri, have also called for antitrust changes to place greater scrutiny on big technology companies.  

“While there has been a lot of chatter about the Biden administration taking a harder line on antitrust activity, it’s not limited to activity from the left,” Widlanski said. “There has been noise from the right, particularly about tech companies … because there’s no safe harbor for these companies, they’re going to be looked at with suspicion at this point going forward no matter who’s in charge.”  

Hafuda said he thinks the political push for more antitrust enforcement will extend to CoStar Group, especially after the FTC just blocked one of its acquisitions last year. An analyst that covers CoStar, Hafuda said that antitrust actions are one of the primary risks he sees in the company’s growth prospects, and the political climate only increases that risk.  

“The political environment is much more attuned to regulatory and antitrust issues,” Hafuda said. “That’s something I’ve cited for a while, and I think it’s become even more salient now given the shift in the environment and the fact the company has continued to grow and is entering the radar of regulators.” 

Florance said he is not concerned about the FTC becoming more aggressive.

“I think there already has been a fairly robust FTC," Florance said. "I’ve never been able to tell the difference between one administration and another on antitrust. It’s not that important to us. I’m sure that it will change, but that’s more at the edge and more of a concern for people that make a living in antitrust, not something we worry about day to day.” 

Where CoStar Goes Next  

As CoStar looks to continue growing with acquisitions that don’t prompt federal antitrust actions, it will have to turn toward new sectors of the industry where it doesn’t have a large presence.  

Florance told Bisnow he remains interested in the residential data sector that it targeted with the CoreLogic proposal. He said it wouldn’t present antitrust risk because CoStar doesn’t have an existing base of single-family residential data. And he said it would continue the company’s trend of growing its data platform to different sectors. CoStar acquired residential data firm Homesnap and hotel data firm STR within the last two years.

“So residential, obviously, CoStar Group has a wide-open field there, there’s nothing but opportunity,” Florance said. “And it continues a long track record of adding additional segments of real estate.”  

Florance also said he sees opportunities in a range of proptech segments such as workflow software and facilities management.  

“There’s more open than closed,” Florance said of CoStar’s avenues for growth. “There are 7,000 proptech companies out there, of which 99.9% are not competitive with CoStar.” 

The CEO said he has decided not to pursue acquisitions of companies that do compete directly with CoStar. He said he didn’t pursue REIS, a commercial real estate data provider that Moody’s Analytics acquired in 2018, because he felt it would be a “challenging deal.” He also said he wouldn’t pursue RentPath again if it became available.  

Florance sold $16M worth of stock in CoStar, or roughly 20% of his equity, last week, according to a Securities and Exchange Commission filing.

CoStar’s avenues for growing through acquisitions are not only limited by antitrust concerns, they are also constrained by the potential that deals could ruffle the feathers of their largest clients: brokerage firms.  

After CoStar reached a deal to acquire online auction platform Ten-X last year, Cushman & Wakefield CEO Brett White voiced concerns on a June Walker & Dunlop webinar that CoStar is positioning itself as a competitor to its largest clients. He said brokerage firms wouldn’t continue to support CoStar if it becomes a competitor, and with the Ten-X purchase he said “it feels like we may be getting closer to that inflection point.”  

Walker & Dunlop CEO Willy Walker and CoStar CEO Andy Florance

Walker & Dunlop CEO Willy Walker voiced similar concerns about the Ten-X deal on a June webinar with Florance, asking the CoStar CEO whether he is competing with his customers.  

Florance told Walker that he is “absolutely not” competing with brokerage firms, and he later emphasized that point in an interview with Bisnow.  

“CoStar will never, ever, ever go into brokerage,” Florance told Bisnow.  

Hafuda said brokerage would be a logical sector for CoStar to expand into because of its vast database of commercial properties, but its relationship with brokerage firms closes off that potential avenue of growth.  

“If you look at their business model and how they acquire a lot of their data, they get that directly from the brokers, and there’s a bit of a symbiotic relationship there that has gotten strained in the past but continues to persist,” Hafuda said. “They probably don’t want to shake that up too much, so I think you’re dealing with some of those constraints where some of the areas maybe could represent growth opportunities, but they’re a bit tricky.”  

For proptech founders, being acquired by an industry giant like CoStar is one of the primary exit strategies they consider.  

Swivel CEO Scott Harmon, whose growing proptech company landed partnerships with three major brokerage firms last month, said he puts CoStar among a small group of industry giants, including RealPage, that are frequent buyers of companies like his.  

“Whenever you’re a smaller or venture-funded tech company, that’s one of the obvious future potentials is to be acquired by someone like that,” Harmon said. “The first thing is to make yourself important and then you’ll see if someone wants to acquire you … the key thing is you need a lot of capital to scale these companies to be big. If being acquired and using capital from someone like CoStar helps you do that, that’s great.”  

Reddy said the proptech companies that Shadow Ventures meets with for potential investments always cite a sale to CoStar as a potential way to cash out. 

“When we get pitched and say, ‘What’s your exit strategy?’ CoStar always shows up as a potential exit strategy,” Reddy said. “So does RealPage, so does Yardi and some of the other folks. CoStar’s always on that list.”  

Altus Group Executive Director Scott Morey, an industry veteran who now researches the proptech sector, said he thinks it makes sense for CoStar to keep acquiring companies. He said there is clearly demand from their client base for more data sets and technology functions, and CoStar can create efficiencies that make a company more profitable than it would be as a stand-alone entity.  

“The value of scale is real,” Morey said. “Logic always says with any emerging market you end up with a lot of little companies — you see it with proptech — and the survivors are the ones that aggregate and provide broader platforms to their customer base.”  

CoStar isn’t the only company out there looking to buy proptech startups, Morey said, but he said there should be enough deals out there to satisfy its ambitions.  

“It’s a pretty competitive market on the M&A side,” Morey said. “I feel like we’re very much in a collective growth market that has ample opportunity for CoStar and others to grow.”