Dealmaking is an inexact science, a lesson Guaranteed Rate founder Victor Ciardelli learned the hard way in 2017.
When mortgage servicer PHH Corp. wanted to get out of the lending business, Guaranteed Rate bought out its share of a joint venture with Realogy Holdings Corp. The result was Guaranteed Rate Affinity, a new joint venture with Realogy.
“At the time we negotiated the deal, they had about 440 loan officers,” Ciardelli recalls. “By the time that we went through the transition in bringing on their loan originators, it was down to around 320 loan officers. We were losing about 20 loan officers a month. We took over a company that was a sinking ship.”
It took time and intense conversations to get things on track, but the effort eventually paid off for Guaranteed Rate, which has nearly 5,000 employees and funded almost $24 billion in loans in 2018.
“Identify where the problems are and if they keep coming up over and over again, you keep working the problem,” Ciardelli says. “You fix the problem, fix the problem and fix the problem. Eventually the noise goes to zero.”
We caught up with Ciardelli to talk about the steps he takes to avoid difficult acquisitions and the important role culture plays in determining the success of a deal.
Find the right people
Guaranteed Rate was founded in 2000 and Ciardelli credits the company’s success over nearly 20 years in business to a number of things, including dealmaking.
“It's been an important part of the growth of the business,” Ciardelli says. “We've taken advantage of the opportunities as they have come to us. We did a number of M&A-type ideals prior to the market crash [of 2008] and then when the crash hit, we knew the formula and we took advantage of it. It was maybe 20-plus acquisitions in a matter of two years.”
Those companies and the leadership that came with them from across the country have been key strongholds for Guaranteed Rate.
“It’s all about having the right people,” Ciardelli says. “When you're able to acquire the right individuals that culturally fit your team and the way you think and operate, it's everything. Then you can build around those people and continue to grow your business.”
Ciardelli did not approach his post-crash M&A activity with a goal to complete a specific number of transactions.
“Honestly, we were just keeping our foot on the gas and growing the business,” he says. “We have a great platform and we thought it would work well for other independent mortgage companies that didn’t have the strength in the platform with technology, marketing, pricing and products and our workflow technology.”
Identify the target’s intentions
Culture is a critical component whenever you’re looking to make an acquisition. You need to know the intentions of the leadership team at the company you’re looking to acquire.
“Do they want to stay on and continue to run their team?” Ciardelli says. “Are they going to take direction from you? Are they going to integrate into your platform? Or do they want to exit and get out? Those things really matter, especially at the top.”
Sometimes there are deeper issues at play, as was the case with the PHH Home Loans deal, Ciardelli says.
“I put new leadership in place and put our own people in that culturally fit with us and the vibe of our organization and then really worked to transition the cultural vision,” Ciardelli says. “The No. 1 thing is to not panic. So often people are overwhelmed. They don’t know how to handle it. They don’t work the problem. They don’t address the issues. Nobody wants to be honest about what the problems are because a lot of people just don’t like talking about it. So all of a sudden, now the cultural divide becomes even greater.”
Assess your own needs
Acquisitions can provide great value, but they can also be a lot of work, Ciardelli says. You don’t always need to make a big dealmaking splash to achieve your organizational goals.
“It’s typically easier to take a company that is a smaller acquisition and roll them in,” Ciardelli says. “When you have bigger acquisitions, they tend to not bend as much since they have established their own culture. So at times, M&A deals are really difficult. I'm more interested in the smaller deals and just being able to find smaller players to integrate than I am in the big companies that are out there at this point.”
Be sure to assess the depth of experience in the company you’re pursuing.
“Look at the people that are within the organization and how deep their bench is,” Ciardelli says. “How skilled is the leadership and the other employees on the team? You know you have a good acquisition if you have a deep bench with the company that you're acquiring. You can create a lot of value there. For companies that are really top-heavy from a leadership standpoint and they don't have that deep bench, it can be really tough.”