Unsplash dollars

The strength of the dollar makes European acquisitions more attractive to US buyers


What economic turmoil means for proptech M&A

Currencies crashing, inflation soaring, investors fleeing – today’s economic climate is anything but easy – is a wave of consolidation now inevitable among suppliers?

Proptech might be a growing phenomenon but it is not immune to global headwinds. Having hit a record high in the first half of the year investment in proptech solutions has slowed as the year has gone on. The bubble is over, valuations are falling and it’s time for profitable businesses to step forward.

M&A advisers report being busier than ever and notable takeovers are appearing on a weekly basis. As well as buying growth, expansion overseas is another move that can protect a tech supplier as the storm takes hold. European tech is looking to North America and vice versa.

Architrave, a leading asset management platform in Europe, this week announced the acquisition of Arex, a North American-based proptech company. The acquisition bolsters Architrave with the additional infrastructure and expertise to become a global tech player.

Maurice Grassau, founder and CEO of Berlin-based Architrave, comments: “The pandemic and post-pandemic phases have changed the shape of different industries’ landscapes, sometimes resulting in clear winners with abnormal profits. Sentiment plays a significant role in M&A activity; despite the macro backdrop remaining unchanged in many regions, we are still seeing companies preparing for the worst. Those companies that have done well, and have the capacity to do so, will look to maintain growth and momentum – inorganically – so deals can be expected where the main driver is client acquisition and anything that will build further resilience. With proptech still in the growth stage, there is a kaleidoscope of different players in the sector. Many may not survive the upcoming macro-hardship, but we do expect to see growth-driven deals from more mature players, and opportunistic value-driven deals for those looking to consolidate. In any case, proptech is undeniably on the path to consolidation. The economic backdrop will only affect how fast it happens and where consolidation comes first.”

California-based VC heavyweight Roelof Opperman of Fifth Wall urged his followers on LinkedIn to book their flights to the UK and pick a Premier League football (soccer) team to support before embarking on a buying spree.

Market mood

PlaceTech asked vendors and investors for their outlooks on…

  • …the impact of the weak pound and euro against the dollar
  • …how technology companies should respond to economic hardening
  • …M&A activity in the past few months.

Aaron Block, co-founder and managing partner, MetaProp, a proptech VC in New York.

“The dollar should allow for strong balance sheet corporates to shop for interesting opportunities abroad. With that said, economic uncertainty as well as lower equity multiples across the domestic United States and the international markets have many of today’s organizations focused in on their core markets and business profitability. It will definitely be interesting to see how things play out over the course of these next six to 12 months.

“Tech M&A in 2022 has featured the usual bulge bracket buyers like Adobe, Oracle, Microsoft, Intel and Google. The real estate industry also saw the completion of the Prologis and Duke Realty deal. On the proptech front, acquisitions were led by buyers such as ICE, Autodesk, Siemens and MRI. The outlook is very strong for continued proptech M&A. Many of the traditional real estate companies are maintaining strong balance sheets and are hungry for competitive advantages as well as new growth opportunities. In addition, keep an eye on technologies that help real estate firms to forward their environmental, social and governance and diversity, equity and inclusion targets.

“First, tech companies should focus in on running a tight ship – keeping fixed costs down, homing in on efficient customer acquisitions and trimming as much fat as is possible. This should be religion. Secondly, patience pays in capital markets. There is a lot of uncertainty & investors are still waiting to see how valuations will settle. If tech companies need more capital, they should consider raising only as much as they need to reach the next growth milestone. Lastly, focus on their people. The labour market has loosened a bit, offering a prime opportunity to reward their best contributors and selectively upgrade critical positions.”

Justin Vogt, tech investor, CEO Evermore Industries and board director at sensor company Avuity, headquartered in Cincinnati.

“Tech M&A appears to have slowed in recent months, but not as much as I would have expected given the uncertain economic environment. As the economic outlook becomes clearer and there is increasing confidence in a recession, I would expect to see M&A activity gradually increase. This will likely be driven by consolidation as larger, profitable companies weather the economic storm more smoothly than smaller, unprofitable businesses presenting an opportunity for the consolidator to acquire new technology at attractive prices. The big question in this space though is the amount of dry powder in the VC community. With record levels of undeployed capital, the venture capital community has an ability to fund smaller businesses through turbulent times if they view it as a reasonable use of capital. My expectation here is that only the best VC backed companies will be the recipients of capital in these turbulent times, resulting in a large number of small companies being available for acquisition as they near the end of their runway.

“It is time to focus on the balance sheet. It is time to understand how long accounts receivable are outstanding, what assets you may be able to borrow against, how long you can stretch payables and most of all, how many months of cash you have on hand. While most tech companies only focus on the income statement, growth rates and gross margins, in this hardening economic environment, focus must be shifted at least temporarily towards defense, rather than offense.

“More broadly, tech companies need to focus on unit economics in a time like this. Ensuring that every unit is sold profitably, and if not, where is there an ability to cut costs to at least approach profitably. Any company with negative unit economics will struggle to in a hardening economic time as competition for venture capital dollars becomes more difficult to acquire and growth rates likely slow.

Charlie Wade, EMEA managing director at global leasing software VTS.

“Although less VC money is circulating currently, the industry is seeing strong interest in investment from legacy commercial real estate players. These companies are able to prioritise deals that are long-term and based on their strategic interests, forming deeper and more meaningful partnerships across the industry. At VTS, for example, we recently announced a Series E funding round of over $125m led by CBRE, reflecting the serious industry appetite for backing well-built, established technology players. Even if VCs are being more conservative, cash is still flowing in proptech for those companies that stand out among the competitive landscape.

“It’s also important for businesses to take a long-term view and focus on the structural growth drivers behind the market, such as the use of tech by landlords to manage their buildings and market their space. These products provide data which inform strategies and accelerate activity, ultimately delivering significant ROI. During times of uncertainty these products are proving necessary and, testament to that, we’ve seen that the M&A world for the right solutions hasn’t slowed down.

“Furthermore, proptech is still relatively immature in terms of adoption so good businesses that are well capitalised should feel confident about growth among prospects in the industry. Over the next two years the industry will invest more in deploying technology than it has in the last 10 years, particularly as real estate firms look to weather the economic climate and succeed.

Oli Farago, CEO founder at asset management tool Coyote Software, based in London.

“Despite the challenges, the current recession could actually accelerate the adoption of technology across real estate, as owners look to fine-tune their portfolios and manage their assets more efficiently.

“During the last major recession in 2009, the newly established team at M7 Real Estate (of which I was a part) did just that. By digitising the way landlord and tenant data was collated, visualised and analysed, the team had a much quicker and more comprehensive understanding of the market, during a very turbulent period. Eight years later, M7 Real Estate had assets under management worth £8.5bn, and that proprietary software was launched as a separate venture, Coyote Software. For proptech firms that are genuinely helping grow revenues and drive efficiency, demand could actually be even stronger in the downturn.”

Your Comments

Read our comments policy

Related Articles

Sign up to receive the PlaceTech Weekly

Keep informed on the latest products, trends and research in property, for free.


Keep informed on the latest products, trends and research in property, for free.
By subscribing, you are agreeing to our Terms & Conditions and Privacy Policy

"*" indicates required fields