ISSUE – Dec. 25 | Mergers of equals: VTS and Hightower take the rare long view

Brad Svrluga – GP at Primary Venture Partners
A few weeks ago, we learned of the news that VTS and Hightower – two of the leading cloud-based leasing and portfolio management platforms for the commercial real estate industry – are merging in a deal that will create one of the largest real estate tech companies in the country, valued at roughly $300 million. The combined company will provide asset management tools for more than 5.5 billion square feet of commercial space across the US and UK. As a marriage of quasi-equals, it’s a union of the sort that is incredibly hard to pull off, but one that – if executed successfully – will be a game-changer for both companies, their customers and the commercial real estate market as a whole.

What these guys have pulled off is a rare, difficult, and incredibly admirable thing in my mind. Generally, private-private mergers of companies relatively equal in stature present a world of risk and uncertainty for both parties. I’ve seen many that would make tremendous strategic sense, but for a variety of reasons they hardly ever get pulled off. The risks of such an undertaking are many – from questions over company leadership, board seats, complicated logistics of combining two teams, uncertainty over job security and lack of control over the overarching business strategy of the resulting entity. Add that to the reality that neither group of shareholders walks away with any immediate liquidity and the risk-reward is often hard to square.

But why? Shouldn’t it be obvious that deals like a VTS-Hightower combination will lead to a much bigger outcome in the end, and in fact decrease risk for shareholders by taking two arch enemies and putting them on the same side of the table? Perhaps, but those theoretical ideas leave out the human realities of these choices. At the end of the day, ego is too often the thing that gets in the way. When considering the complex web of personal dynamics and shifting roles, responsibilities, and levels of control and influence associated with a merger of private companies, you realize that in pulling off a merger like this everyone is agreeing to give up something big to make it happen. You can’t get these things done without checking your egos at the door – and that’s not natural behavior for entrepreneurs and VCs, if you haven’t noticed! As a result, it’s just downright rare that the principals involved can take a fully dispassionate, non-ego-driven, long view on a deal that in the short term will undoubtedly prove extremely uncomfortable.