A few eyes were raised in 2008 when Howard Hanna Real Estate Services closed a deal to buy Realty One. Real estate values were plummeting as the U.S. economy entered what would become known as the Great Recession. But Howard W. “Hoby” Hanna IV was confident that time would reveal it was the right move to make.
“The integration that deal brought together for our business, the catalyst it created for future growth has been amazing,” says Hanna, president of Real Estate Brokerage at the nation’s third-largest real estate company.
We spoke with Hanna last spring about the craft of dealmaking and the strategy he follows when you’re exploring a potential deal. His approach enabled Howard Hanna to make more than 25 deals in the past 15 years, which includes the Realty One deal, as well as the acquisition of Smythe-Cramer in 2003.
In this edition of Dealmakers Live, we learn more about what drove these two pivotal transactions. We also gain greater insight into the value Hanna places on market share and his perspective on doing turnaround deals. What follows is a transcript of the above video, edited for readability.
Two deals that changed everything
We’ve done over 25 deals in the last 15 years. But two transactions are most memorable to me for the impact they had on my life and my family’s life. First was our acquisition of Smythe-Cramer, which 15 years ago brought me to Cleveland. It was the largest deal that Howard Hanna Real Estate as a family business had ever done. The McKelvey family that owned the company, we were excited and honored that they would have us come to Cleveland to take a look at their business. But at the time, it was really a marriage of equals.
Smythe-Cramer was the 24th largest real estate brokerage firm in the country, we were the 23rd. Together we emerged to become at that point the ninth or 10th largest company. That had a lot of complexity to it. The deal itself was a pretty easy negotiation because we’re like-minded. But the integration post-deal of bringing a new brand to market with a 100-year-old brand and a legacy and bringing all the best cultures together was a significant undertaking.
That was 2003. And then in 2008, just here in Cleveland as well, we acquired Realty One, which was the other venerable, household brokerage name. Smythe-Cramer had grown to be No. 1, Realty One was No. 2. That was an in-market deal. We even say within our family that the Smythe-Cramer deal was that first huge deal to a new market that we did. People will say that was a huge statement. I always say that the Realty One deal was the one that really changed our focus. It was 2008. Some people would say, why would you be buying a real estate brokerage business in Cleveland, Ohio, in 2008 when you reflect and look at that? But the integration that deal brought together for our business, the catalyst it created for future growth has been amazing.
The importance of market share
When you look at market share and the importance of market share, at least for me, where we do business, I pay more attention to market share than any other metric or KPI that we look at. We’re doing business in markets like Cleveland, Buffalo, Detroit, Pittsburgh — markets that don’t necessarily have great growth year over year. So we have to look at how we create a lasting input to the market as it is. Taking those market shares and focusing on them and saying how do we grow that? Whether it’s through acquisition or whether it’s organic, I’m always looking at that strategy and how it affects us.
Follow your dealmaking strategy
So our thought process of what we’re looking for in terms of strategic acquisitions — if it’s in a new market, and we define as of today our market would be mid-Atlantic, Midwest cities — we really only target in those new cities. If it’s a new market we’re going into, we only want to deal with No. 1 or No. 2 in a marketplace. That’s been a great part of the success of our strategy. As good as we think we are, we don’t think we’re turnaround experts. We don’t think we can come into a metropolitan marketplace and take No. 5 and really try to grow with the acquisitions on top of it. What’s worked for us over the years, is targeting No. 1 or No. 2 in the marketplace.
We like to look at a culture of a company being that our core business is the brokerage business, but then saying, ‘How can we add on to that our mortgage, our title and our insurance divisions to create a one-stop shopping basis?’ That doesn’t mean a company has to have those businesses. Sometimes we prefer when they don’t because we can bring that new culture in. But it has to be a culture that is willing to accept that with their clients and customers. To the adverse in markets where we already are, we believe that we probably in our industry are officed enough, so we look and say, ‘How can we create some greater consolidation, have best practices and really as competitors, make sure that philosophy fits and the culture fits?’