Integration planning started long before an acquisition was completed.  During the due diligence process, we would look at the business we were acquiring and then systematically work out what level of integraton we would need in the businesss and over what period of time would we need to execute the integration.  Now when we thought about integration, we looked at the obvious things like finance, HR, systems and processes, products, marketing, and technology.  We also looked at cultural integraton and how we can bring the acquired company into the Group as an equal member.

Firstly, not every integration is the same.  You need to think about the requirements of each business and then tailor the integration to the business requirements. 

Next we separated the integration tasks into 3 phases.  The first phase, which was done as quickly as possible and was deisgned to make sure that we could track and monitor the financial performance of the acquisition.  We therefore focused in the first phase on financial integration – especially moving the new company to the REA Group financial platform.  During phase one we would also look for quick wins in cost reduction especially if the acquired company was paying for a service (e.g. ComScore) that we already had access too. 

The second phase of integration went deeper in the business takes a little longer and goes deeper within the business.  In this phase we would integrate the new site into the overall group of sites and ensure that there is linking between the sites as this helps SEO and cross site traffic.  We would also look at HR integration through the implementation of common systems and processes so that we could assess the people in the acquired business.  During this phase we would also send in the Group Performance Team that can be thought of as an internal consulting team that brings best practice into the acquired company.  This team would primarily look for ways in which the acquired company’s sales and marketing team could benefit from the knowledge and experience of the REA Group as a whole.

Finally, phase three is all about technology integration and this would take a much longer time.  When technology is integrated, it is about three things – internal technology (tools used for running the business), the products themselves (in this case the websites) and finally the hosting of the sites.  The underlying philosophy is that there are cost savings and efficiency gains from having a common set of internal tools, having a minimum number of data centres for hosting and finally having a common technology platform so that products could be launched faster and the overall cost of development could be reduced.  Full technology integration tended to take 6 – 12 months depending on other projects that were running in parallel.

The last and most important aspect of integration is cultural integration.  This is really a part of each phase and is something has to be driven by the CEO.  The onjective of cultural integration is to introduce the REA Group’s culture to the target company and then to align the company’s culture to the Groups’ culture.  This takes a while but is very important for the long term growth of the Group.

The last part of integration is leadership.  The approach we took was to assign a full time integration manager to lead all phases.  The integration manager was carefully selected as it is important that they are a great representative of the Group, have the implied authority of the CEO, and are able to truly lead the integration effort.

Over the last 2 years, the REA Group has acquired 15 different businesses.  These acquisitions split broadly into capability enhancement, consolidation of existing markets and the entry into new markets.  The acquisitions that were entries to a new market include propertyfinder.com, casa.it, the atHome Group, propertyfinder.ae (UAE), and squarefoot.com.hk.  The first acquisition based entry to a new market was the purchase of propertyfinder.com in the UK. 

The initial experiments with moving into New Zealand demonstrated that there was the chance of creating value in these new markets.  However we also realised that organic entry was really only appropriate where we had an asset that we could leverage (e.g. the traffic to the Australian site) or where the market structure was early stage.  (See Analysis – Four Types of Property Portal Markets on our sister site – www.propertyportalwatch.com)

Therefore we identified that the next step in overseas expansion would have to be through acquisition and that due to the uncertainty associated with early stage markets, we focused on the maturing markets.  

When we did a high level scan of maturing markets, it was clear that the UK was the most attractive.  Firstly,
it had a similar agency structure to Australia, secondly it had a similar property portal market with sites operating the same way as in Australia, and finally, we were able to operate seamlessly in the market as there was some experience in operating a business in the UK and of course language was not a problem.

The next step was to identify the potential targets in the UK and this was a relatively simple task – we just looked on the net.  Research showed that the major players were rightmove.co.uk, findaproperty.co.uk, primelocation.com, propertyfinder.com, and fish4homes.co.uk.  We sent each of them an email and set up meetings over the course of a week.  During the course of these meetings, it became apparent that the UK property portal market was very similar to the Australian market and in some ways, a couple of years behind in development.  It also became apparent that propertyfinder.com could be purchased as it was majority owned by a UK VC fund and they were considering exiting the business.

At this point we decided to bring in News International as a partner on the deal as to help reduce the risk and to gain the support of a local media company.  Having negotiated a deal with News International we then negotiated the rest of the deal with propertyfinder.com and conducted due diligence.  Our preferred method here was to have local consultants do the legal, financial and tax due diligence while a dedicated internal team does the technical and operational due diligence.  It was through this approach that the REA Group acquired 50% of Propertyfinder.com (with News International acquiring the other 50%) and the business was integrated into the REA Group.

Once we had acquired propertyfinder.com and focused on building out the business, we then started to have new opportunities pitched to us.  We therefore became aware of casa.it and the atHome Group based out of Luxembourg.  Both of these were analysed based on their market potential and the value that the REA Group could bring to them.  Both turned out to be good acquisitions for the Group with casa.it being the market leader in Italy and the atHome Group delivering strong profit growth.  There were other site referred to us however they didnt fit our expansion criteria and we walked away from them.

Following the acquisitions in Europe, we started to think about emerging markets and what we do there.  In the property portal game, emerging markets are about longer term investments and that means understanding where the basics are strong, investing in a business in that market, and then watching very closely.  We took this approach with the United Arab Emirates and with Hong Kong.  In both cases we identified targets and then took equity stakes in them.  In the case of the UAE, the REA Group now owns 51% of this with the founder working an earn out while in Hong Kong, the REA Group has now acquired 100% of that business.

In going global through acqusition, the key lessons we learned were:

• Select your markets carefully however nothing is better than spending the time in the market
• When you have selected your target move quickly and negotiate with purpose
• Conducting of due diligence will require time and effort and you need to have a dedicated team to do this – one that does not impact the current day to day operations.
• Partnering is an acceptable way to reduce risk but you need to select your partners carefully (more about this in a separate posting)
• Once you have acquired a business you need to move fast on integration and you also need to have a dedicated team to oversea this.

One of the most frequent questions i am asked is how did you take the business from a purely Australian operation to a global focus.  This is not a simple question to answer so i thought i would write a series of blogs on this topic.  The first blog is about organic growth and how the REA Group entered the New Zealand market.

In early 2005, it was becoming clear that realestate.com.au would be the dominant residential player in the Australian online property market and that its commercial site, realcommercial.com.au would also be the leading commercial portal site.  The question then became “what do we do next”? 

Early on we clearly knew that online real estate was the core business of the company and that moving into other classified segments was not what we would do.  Therefore, following a discussion with the head of sales for Australia, Shaun Di Gregorio, we decided that we would look at New Zealand to test our ability to start up and operate in a new market. 

We selected New Zealand as it has a similar real estate market, many of the companies that operate in Australia also operate in New Zealand, there was demand from expat New Zealander’s to search for listings in New Zealand, the New Zealand market was “hot” and it was roughly the same time zone.  The objective was to reduce the risks associated with starting a operations in a new country and at the same time to learn about how we can do it – and to really work out IF we can do it.

To further minimise risks, we took a slowly, slowly approach.  Instead of starting up a new site in New Zealand, we added a map of New Zealand to the realestate.com.au website – therefore focusing on driving people from the Australian site to look at the New Zealand site.  To build content  in the New Zealand section, we hired a team of New Zealand “back packers” in the Melbourne office and had them call agents in New Zealand to get them to sign up and also to upload their listing onto the site. 

This approach worked and relatively soon afterwards we had competitive content and a valid offering.  As we drove more and more traffic to the New Zealand section of the site, we became confident that we could launch a New Zealand only site and we launched allrealestate.co.nz.  (Unfortunately realestate.co.nz was owned by the main competitors in the New Zealand market.)    For a while we maintained the sale team in Australia however as momentum built, we put a team on the ground in New Zealand (made up of New Zealanders).

Today allrealestate.co.nz is a serious player in the New Zealand market.  It is used by around 50% of the NZ agents and has over 200,000 UB’s per month visiting the site – just behind realestate.co.nz (and a fair way behind trademe.co.nz/property - the real estate section of trade me).  However, what is more important then the absolute numbers is the fact that 50% of the traffic to the site comes from outside of New Zealand – bringing a whole new audience to New Zealand properties.

Lessons Learned:

• It is better to do than think too much – therefore once you have a reasonable idea of what you plan to do, put in place an organised experiment to test your hypothesis
• Keep your initial organic growth options simple and executable
• Try to reduce the risk of new market entry as much as possible by leveraging what you already have (e.g. sale team in Australia)
• Don’t strive for too much too early (e.g. starting up in Russia would have been a challenge)
• Reduce investment to the minimum to trial the concept
• Need a different proposition – we used the proposition “advertise on allrealestate.co.nz and reach a global audience looking at New Zealand listings”
• Once you are onto a good thing, accelerate