Real Estate Tech M&A Outlook For 2025

After experiencing a recent slump, real estate tech M&A activity may be headed for a rebound. Here are some of the positive market tailwinds poised to drive more M&A deals in 2025 and if founders should consider seeking outside investment.

Potential interest rate cuts may drive more M&A

It’s no secret that the Federal Reserve’s rapid interest rate hikes between March 2022 and July 2023 dampened M&A activity across the board. As interest rates rise, so does the cost of capital, making it harder for PE firms and strategic buyers to hit their target returns.

However, the Fed cut its key interest rate in September and November, and another December cut is in the cards. As a result, M&A activity has started to moderate, with proptech M&A transactions reaching 45 in 1H 2024 according to Houlihan Lokey, up from 43 during the same period in the previous year. Meanwhile, residential real estate tech acquisitions turned the corner starting in 2023.

Many companies are ready to deploy high cash balances

According to FortuneWith higher interest rates discouraging borrowing and enabling higher returns on cash, many companies have high cash balances. As a public company, this gives you three potential main options: pay out dividends to shareholders, invest in higher ROI initiatives, or acquire other businesses.

The longer a company holds onto cash, the more pressure there is to deploy it. M&A activity may increase as a result—especially since more cash can offset concerns over the cost of debt.

Rising stock values increase investors’ buying power

The stock market is at an all-time high with the S&P 500 recently topping $6,000 for the first time. Share prices of real estate data and software companies have followed suit, increasing by 36% from August 2023 to August 2024, according to Houlihan Lokey.

This is good news for M&A. It means public companies can issue fewer shares to pay for acquisitions, effectively raising their purchasing power. Plus, buying businesses at a lower revenue multiple could further boost a company’s market cap (as the lower-priced business gets valued at the acquirer’s higher revenue multiple post-acquisition).

New Republican admin may have minor impact on M&A

Will President-elect Donald Trump’s return to the White House in 2025 impact M&A activity? Historically, the current administration has had little effect. However, Republicans tend to favor less regulation, which could spur more business and M&A activity. Furthermore, Republicans are historically slower to block mergers due to antitrust law.

That said, it’s anybody’s guess how the next four years will play out. As the dust settles, more certainty may enter the market, instilling more confidence in whether now is a good time for real estate tech companies to raise capital.

Applied AI software poised to attract investor interest

AI has become a major driver of M&A as real estate tech companies try to stay ahead of the latest tech. However, competing with OpenAI, Anthropic, and other industry giants developing large language models (LLMs) is difficult and risky. The biggest opportunities lie in building applied AI software that layers unique workflows and data on existing AI models.

For example, software for landlords to optimize apartment rents or for lenders to optimize underwriting decisions may be poised to see more funding, liquidity, and long-term success.

When should real estate tech founders seek a transaction?

As a real estate tech founder, now may be a good time to consider selling your business or raising capital. That way, you might be able to take advantage of potential market tailwinds: lower interest rates, high cash balances, rising stock values, potential deregulation, etc.

However, it’s important to first perform well on key SaaS metrics, such as YoY revenue growth rate, gross margin, and net revenue retention (NRR) rate. Otherwise, your business’s underperformance may deter potential investors.

Assuming your business is hitting key SaaS metric milestones, however, you may consider selling during a growth phase. That may help you attract more investor interest at a higher sales price. The alternative is maybe waiting too long and potentially missing out on an attractive M&A deal, and getting stuck with an underperforming business.

Finally, consider other milestones that could signal it’s time to pursue a liquidity transaction: the resources required to grow outweigh your current resources, your business role evolves into one that no longer interests you, or you want to limit your risk by taking on new capital partners. If you weigh your position and options carefully, you can leverage them to help achieve a more successful M&A transaction.

This material and the opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. The material may contain "forward-looking" information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns and proposed or expected portfolio composition. Past performance is no guarantee of future results and there is no assurance this trend will continue.

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