Redfin is making a major push into the residential home rental market, announcing Friday morning that it is paying $608 million in cash for Atlanta-based RentPath. The deal, approved by the boards of both companies, will establish Redfin’s online rental marketplace, adding online destinations such as Rent.com, Rentals.com and ApartmentGuide.com that attract about 16 million monthly visitors.
When the deal closes, it will also add 700 employees to Redfin’s tally of 4,000 employees. RentPath posted revenue of $194 million last year, while Redfin saw revenue of $875 million for the trailing twelve months ended September 30, 2020.
It would mark the largest acquisition in Redfin’s history. Since its founding in 2004, Redfin has acquired only one other company: Walk Score.
Analysts at Wedbush Securities said Redfin’s move into rental listings is “very complimentary” to its core business of home-buying and selling, adding that the deal represents “strong value” and will be a significant boost to Redfin’s traffic.
“We view Redfin’s intention to acquire RentPath as a sound strategic move that enhances its offering in the near-term and especially over the long-term,” Wedbush wrote in a research note Friday.
Possible regulatory headwinds await. In December, RentPath terminated an agreement to be acquired by CoStar Group following a Federal Trade Commission lawsuit to block the deal, citing potential harm to consumers due to consolidation in the residential rental market. That acquisition, originally announced in February 2020, valued RentPath at $588 million and came as the company entered Chapter 11 bankruptcy.
“RentPath has made significant progress and is on an upward trajectory despite an undoubtedly challenging 2020,” said Stephen Spencer, Managing Director at Houlihan Lokey and advisor to RentPath’s lenders in a press release at the time of the canceled CoStar deal. “The market for real estate technology businesses continues to be very strong as recent M&A transactions have highlighted.”
Meanwhile, CoStar is pushing back on a $60 million break-up fee that RentPath said was owed after the deal fell apart, according to The Real Deal.
In order for Redfin’s acquisition to move forward, the FTC and bankruptcy court will need to green light the deal. In a conference call Friday morning, Redfin CEO Glenn Kelman said he didn’t anticipate the same regulatory scrutiny that CoStar encountered since Redfin is relatively new to the rental listing space.
Redfin is best known for its home buying and selling services, but apartment rentals is an attractive slice of the home market that the Seattle company has not yet touched in a big way.
“RentPath has more than 20,000 apartment buildings on its rental websites, and grew its traffic more than 25% last year,” said Kelman in a statement. “We can almost double that audience, as one in five of Redfin.com’s 40+ million monthly visitors also wants to see homes for rent. Together with RentPath, we can create an online destination for every North American to find a home.”
We love you RentPath! The folks on https://t.co/TdSyB9TW77 who want to see rental listings can almost double RentPath's audience. And you can broaden Redfin's mission to redefine real estate for all consumers, not just the ones who can afford to buy a home https://t.co/Bnn07YbRKg
— Glenn Kelman (@glennkelman) February 19, 2021
RentPath is led by Dhiren Fonseca, who was appointed interim president and CEO two months ago just before the CoStar deal fell apart. Fonseca who serves as an adviser to TPG, one of the private equity owners of RentPath, has strong ties to Seattle,
He’s the former Chief Commercial Officer at Expedia, where he served for more than 19 years. Before that, he worked at Microsoft for many years, working alongside Zillow Group CEO Rich Barton to spin out Expedia into a separate company in 1995. He’s also a board member at Alaska Airlines.
The deal comes three days after Redfin’s cross-town rival Zillow Group made its own big purchase in the real estate market, buying home touring company ShowingTime for $500 million. In addition to showcasing homes for sale, Zillow also operates a rental marketplace.
In Friday’s conference call, Kelman specifically cited competition with Zillow in rentals, and tipped his hat to Zillow’s 2013 StreetEasy acquisition which gave it a major beachhead in the lucrative New York rental market. Given that deal, Kelman said that New York would be a tough market for Redfin to crack, and that they’d likely focus attention elsewhere.
Bigger picture, Kelman said that Redfin needed to be in the apartment and home rental business, since it is a typical entry point for consumers and serves as a stepping stone to eventual home ownership. He added that it would have likely taken four years for Redfin to build out the rentals inventory on its own, and because it lagged larger competitors they needed to buy their way into the market.
Redfin’s stock has more than doubled in the past year, and the company now boasts a market value of $8.8 billion. You can read more of Kelman’s musings on the acquisition here.
