Mark McLaughlin lusts for opportunity. The Compass deal, the biggest in real estate this year, is consistent with the Pacific Union CEO’s singular vision.

Pacific Union CEO Mark McLaughlin and his team have done as much as any indie broker in the post-recession housing market to bring the real estate industry into the next century.

He overhauled an old brand, built a huge company with 1,700 sales professionals and created a vibrant culture that attracted high-quality agents. He traveled the globe to find customers and adopted technology as fast as anyone in the business.

McLaughlin did not declare war on the portals, but he did engage his peers to protect their franchise from technology interlopers that might hurt the industry.

While it surprised some that he did a bro-hug with Compass, it makes a lot of sense. McLaughlin lusts for opportunity, and he has always taken some of his hard earned money off the table as he built his enterprise. This move is consistent with his track record of success, growth and innovation.

If you cannot beat them, join them

In a few short years, Compass has become the single most important company in the industry, grabbing share, gobbling up agents and now acquiring brokers big and small. We hear rumors all of the time about who will be next in this Pac-Man-like feeding frenzy.

Compass yard signs are showing up everywhere and their offices are opening up throughout the country. I recently found myself in a real estate deal, working with a Compass agent. Huh, how did that happen? In start-up land, that is called a field siting. This thing is real.

I suspect soon the New York-based real estate darling will announce a big portal deal with Zillow or realtor.com to turn on the flywheel of a marketplace of top producing agents on one end and consumers on the other. This is a rumor, but it makes sense. Compass has the funds to make all kinds of things happen. 

Always expect the unexpected with this colorful company. Makes your head spin.

CEO Robert Reffkin makes big moves and runs at warp speed without blinking. He does not read the old real estate tea leaves, he is brewing a new blend that is a refreshing real estate drink. Inman must scramble to keep up with this evolving story.

Boost to Compass Management Team

McLaughlin gives Reffkin a deeper management bench with elephant-size footing on the West Coast, the largest real estate market in the world.

His revenue will instantly get a major pop, which should impress his investors. And this whale-size deal gets him closer to his 20 percent market share goal faster.

The transaction size was a surprise, reportedly costing Compass around $200 million.

Naysayers did some simple arithmetic and came to the wrong conclusion that the acquisition would drain Compass’s bank account. I really doubt that, these are not stupid people.

Money follows growth, it is that simple

Someone who can raise $750 million can figure out a transaction structure that does not wipe out the cash on the balance sheet. Debt, preferred or common stock, warrants and yes some cash, whatever.

Don’t forget the possibility that Reffkin has already gotten the nod on more funding. I suspect he is reviewing a term sheet right now.

Softbank partner Justin Wilson said on the Inman stage at Connect last month, that the firm was doubling down on bets like Compass and doted on the company in his 30 minute interview with Clelia Peters.

If it isn’t Softbank, many other investors will line up to fund the Compass juggernaut.

The math works in the tech world

It remains a mystery for many hard working broker owners how a business like Compass can attract world class investors. From the outside, it looks like a low-margin, old-school broker business model.

But Reffkin’s story is much more exciting because of hockey stick growth, which tech investors love. Grow, grow, grow at any cost, fix problems along the way, pivot, duck, weave, and keep growing. That is a path that these types of investors are eager to follow. 

Mistakes are plentiful but forgiven with plenty of capital to fill potholes along the way.

Like all acquisitions, one kink is handling the integration. Never easy and Pacific Union stubbed its toe with its Southern California acquisitions. This deal has already sparked some agent anxiety, which is typical, but more so here because the news got out before it was closed and because Compass was perceived as the enemy.  This stuff will work itself out if management gets ahead of their woes.

For investors, they place bets on management teams and leaders like Reffkin.

By adding McLaughlin and his crew, life was just made much easier for Compass to pile on more cash and keep this amazing run going.

Email Brad Inman

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