NEW YORK (MainStreet) Real estate search giant Zillow finalized its acquisition of competitor site Trulia, in a deal announced on Monday.
The deal -- which is worth $3.5 billion in stock and $100 million in synergies, a technical term for cost savings during mergers and acquisitions -- is expected by 2016.
"Trulia and Zillow have a shared mission and vision of empowering consumers while helping real estate agents, brokerages and franchisors benefit from technological innovation," says Trulia CEO Pete Flint. "By working together, we will be able to create even more value for home buyers, sellers, and renters, as well as create a robust marketing platform that will help our industry partners connect with potential clients and grow their businesses even more efficiently."
The sites have generated significant brand equity and popularity throughout the real estate industry. According to company statements, Zillow attracted 83 million mobile and Web users in June, while Trulia generated 54 million users. Zillow is well known for its nifty Zestimate function, which helps value homes using an algorithm accounting for a property's physical attributes, comparable sales and tax assessments.
"We view this as a transformative transaction that will bring scale to users and create a large network for agents to buy advertising from," says CRT Capital Group analyst Neil Doshi. "With scale, comes more efficiency, as agents don't have to buy off of two platforms, but they can now purchase ads across one network."
Both sites generate revenue via advertisements from real estate professionals looking to gain more Web exposure for their listings.
As for why the companies merged, Raymond James analyst Aaron Kessler points to advertising. "Both companies were spending more and more on advertising and there were concerns over advertising wars in the space," he says. "As a combined company, this won't be as much of an issue."
It remains unclear how the merge will impact consumers and agents who rely on the site to navigate the tumultuous real estate world.
"I think it's great for consumers, but they also need to be careful about the data," says Newport Beach, CA broker Dani Babb, President of The Babb Group Real Estate, Inc. "Some Zestimates are wildly incorrect and clients come to us wanting to list or buy at what Zillow says and we spend a bit of time helping to educate them on why that information isn't necessarily accurate, so I'm hoping the buyout would help both companies become more granular with the information they provide."
Zillow says the combined company will foster greater innovation. "This is a tremendous opportunity to combine our resources and achieve even more impressive innovation that will benefit consumers and the real estate industry," said Zillow CEO Spencer Rascoff.
But as companies gain power, the risk of lacking innovation increases, since consumers have fewer options and there is less pressure on companies to produce cutting edge products.
"I think the beautiful part of the Internet is that a startup around the corner could come up with a great new product or service that disrupts the incumbents," Doshi adds. "For these guys to stop innovating would be a huge mistake."
Despite the acquisition, both the Zillow and Trulia brands will remain active, the company said.
- Written by Scott Gamm for MainStreet. Gamm is author of MORE MONEY, PLEASE