Patrick Ghilani sees the opportunity before him and he’s grabbing it.
“Commercial real estate is a space that has been historically underfunded by technology companies,” says the CEO of MRI Software, which provides property- and investment-management software for multifamily and commercial property owners and investors.
Backed by new PE investor TA Associates, Ghilani has snapped up five businesses in a month, including a pair of UK-based companies that make it a major player in Europe.
“Our goal was to immediately scale with people and product in a region where we could be innovation leaders and essentially have the opportunity to serve the largest part of the market with our best practices,” he says. “We have a development plan in place that is going to allow existing and future customers to get the most innovative platform on the market.”
The acquisitions of Real Asset Management and Qube Global Software strengthen MRI’s European presence, double the size of the business and make Cleveland home to one of the global leaders in CRE technology.
Here’s how Ghilani crafted his plan to complete five rapid-fire deals to solidify MRI Software’s position as a leader in real estate technology.
The time had come
Founded in 1971, MRI Software has changed ownership several times. In 2002, Intuitbought the company for $92 million, then Vista Equity Partners paid $128 million for the company in 2010. GI Partners was next in line, buying the company in 2015 for an undisclosed sum. TA Associates bought out half of GI’s stake earlier this year to become equal partners.
Throughout the acquisitions, MRI has continued to develop its platform, but it hasn’t always been easy to win customers.
“Technology adoption is held back by the mindset that commercial real estate, including REITs, is only about buildings and other physical structures,” the company said in a recent blog post. “In reality, CRE is about data — the collection, analyzing and sharing of vast amounts of data. This realization is vital to being a leader in the competitive REIT world.”
Ghilani, who joined the firm in 2006 as director of global professional services, saw what technology can do for the industry. But before making his play to buy five companies, he needed to make sure the market was ready to take the leap with him.
“The fundamentals are the same whether it’s one company we’re acquiring or many,” he says. “It’s just a matter of the effort, the challenge and the number of people involved. In its simplest form, we’re looking at companies where there is a win-win on both sides with the acquisition. There will never be a situation where we acquire a business and what that business is good at or what it does best or how it is unique in the marketplace isn’t going to be leveraged by MRI.”
Crunching numbers and doing research with GI Partners and TA Associates, Ghilani was confident the time was right for MRI to make its move.
“The global real estate sector is growing at unprecedented rates, with investors and capital seamlessly crossing borders and spanning continents,” Ghilani says. “These five acquisitions make our company significantly larger in headcount, revenue and profitability.”
Buying for cross-sell
Ghilani’s goal was to find companies that would enable him to bring his technology to more customers. He studied financial health, revenue and EBITDA. He also looked at the potential for cross-selling opportunities.
“If we buy a business, can we sell the customers of the acquired business?” Ghilani says. “Are we able to sell them additional software products that we already have? Is there a cross-sell opportunity of our menu of applications into the new install base? And vice versa. Does the acquired business have applications and services that would be desired and of need for our existing install base? The synergistic cross-sell is hugely important.”
It’s an issue that most companies face when they get into potential mergers and acquisitions. What’s the fit and how much effort will it take to bring the two companies together?
“It’s a risk-reward calculation,” Ghilani says. “Are we able to take this business to the next step, to the next innovation, to the next financial milestone? Or is there going to be a learning curve to be able to do that? If there is a learning curve, is the reward of the learning curve worth the sweat equity? Is it worth the risk in some cases of putting effort on the new business versus the legacy entity? It’s a pendulum and we’re constantly balancing the pendulum.”
There are no shortcuts, no magical formulas that give you instant, foolproof answers to these questions.
“It’s a combination of gut feel and formal diligence,” Ghilani says. “We end up having to make the call and thus far, we’ve been pretty good at it. We’re certainly not a risk-free business. We’re not just going out and buying companies that are slam dunks and letting them run. We know we have to put effort into these businesses to make them more innovative. It takes effort to make them healthier financially and to make them better businesses to work at and to deliver better products and services.”
Buying who you know
MRI had extended relationships with the two UK-based companies before they were acquired — RAM as a partner and Qube as a major competitor.
“RAM has been a partner of ours for several years,” Ghilani says. “They provide a fixed asset solution that is already at many of our customers in our install base. Historically, MRI had not had a fixed asset solution. So from an acquisition perspective, we killed two birds with one stone. We were able to fill a major product gap and need of our install base. And that business happens to have a significant footprint in the UK that combines with our international strategy.”
Qube was the next largest player in the market from a property management and accounting perspective. MRI has competed against them and gained great respect for the company’s competitiveness and prowess in the UK.
“We were in a position to make a very fair offer to bring them into the family,” Ghilani says.
The decision of when to partner with a business and when to make a move to acquire it comes down to a number of factors.
“We partner with companies that serve our competitors or serve other industries, so there are a lot of companies out there that wouldn’t make sense for us to acquire,” Ghilani says. “When we find a company where we truly believe that we can add more value to their growth by being part of our family and they can add more value to our growth by being part of us, then we reach out and have that discovery conversation.”
Ghilani quickly determined that RAM and Qube could deliver a lot of value by being acquired. While RAM gives MRI 950 more European clients and another 450 clients worldwide, Qube allows MRI to serve more than 5,500 clients and expands the company to more than 1,200 employees. MRI’s 350 employees in the UK make it one of the largest property tech providers in the UK. There is also growth in Cleveland, as MRI is set to begin a significant expansion of its headquarters in early 2018.
“The union of MRI Software and Qube Global Software establishes a technology powerhouse to support investors, agents and occupiers globally and locally,” Ghilani says. “We are uniquely positioned to address the varying needs of the global real estate market with a comprehensive and flexible portfolio.”
How to reach: MRI Software, www.mrisoftware.com