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Sat. Jul 13th, 2024

Opinion: Denver Legislature Controversy — Where’s the Real Problem?

By meerna Jul10,2024
Opinion: Denver Legislature Controversy — Where’s the Real Problem?

For over 37 years, I have been a consultant to brokerage firms, MLS, Association of Realtors and other entities related to the residential brokerage industry. In addition to general consulting, I have been involved in nearly 1,000 sales or acquisitions in the industry.

In addition to my consulting role, I was an editor at REAL Trends, writing about the same industry. Although I no longer serve as an editor at REAL Trends, I continue to actively read about the industry, speak to industry groups about all the challenges in the market, and serve as a senior advisor to REAL Trends and its parent company, HW Media.

Like many others, I read with some interest the controversy surrounding the announced sale of REColorado, the Denver-area MLS, by two of its shareholders to a private group. Having done significant consulting work for both associations and REColorado’s predecessor, knowing several board members and management of all three organizations, and living in the area, prompted me to meet with the leadership of the two associations, known as DMAR and SMDRA.

Here’s what I found out.

Two shareholders own REColorado. They own all of the shares of REColorado. They are the only shareholders who have control and the right to appoint the company’s board. For their own reasons, based on their assessment of the future of the industry, they have decided to sell their shares of REColorado. Without personally reviewing the shareholder agreements, I am certain they have the right to take this action.

They used an outside consultant to scout the market and recruit potential investors or buyers. They also allowed REColorado management to prepare its own offer to purchase the company. During this process, the company required shareholders to sign confidentiality agreements prepared by the company’s attorneys. From what I understand, all of REColorado’s directors and board members signed such agreements, which are typical in my M&A world and are an absolute requirement for all the deals we work on at REAL Trends Consulting.

DMAR and SMDRA management at some point determined that the third party’s offer was measurably better than the offer submitted by REColorado insiders and took further steps to enter into an agreement with the third party.

At that point, some person or persons in REColorado management began sharing information covered by confidentiality agreements. It is my understanding that several board members voluntarily resigned. Due to other issues that arose at the time, two shareholder associations unanimously voted to remove the remaining directors, and the directors elected to remove several REColorado officers.

It’s hard to fathom why REColorado would think it’s okay to violate their confidentiality agreements. Violations of this kind simply don’t happen in our M&A work.

Further reports pointed to improper conduct by DMAR and SMDRA leaders, the identity of the purchaser, and the treatment of REColorado board members and/or executives.

In my opinion, the shareholders decided to sell assets that are no different than assets they could own, and did so by hiring outside, unrelated consultants and advisors to accomplish that goal. As to the identity of the party to the LOI, I am not familiar with it, but I am sure DMAR/SMDRA management will conduct normal due diligence before entering into a sale.

With respect to the treatment of directors and executives who have left the Company, shareholders have informed me that they intend to ensure that the Company complies with all of its legal obligations and expect the same in return.

Finally, knowing these three organizations as I do, and knowing some of their history, it’s not surprising that any of this has happened. There’s been tension in the relationship between REColorado, DMAR, and SMDRA for many years. Why that is, I don’t have much to offer as a way to explain it. DMAR and SMDRA representatives have said that it has a lot to do with climate change caused by the recent NAR litigation, and they believe it’s in the best interest of their organizations and their members.

Regardless, DMAR and SMDRA had the right to take this course, they used outside help to do so, and they proceeded. While the sale of the MLS owned by the real estate agent is big news, the rest of what was reported is not.

Steve Murray is a senior advisor to HW Media and co-founder of REAL Trends.

This column does not necessarily reflect the opinion of HousingWire’s editorial department or its owners.

To contact the editor responsible for this article: (email protected)

By meerna

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