The Federal Trade Commission has completed its investigation of Zillow’s acquisition of Trulia and will not block the deal, which is expected to close on Tuesday.
The decision puts an end to speculation that antitrust regulators might impose conditions on a deal that puts ownership of the two most popular U.S. real estate search sites under the same roof.
Although Zillow exeuctives say they plan to continue keep the Trulia brand and website alive, the merger could pave the way for it to raise the rates it charges for ads and leads across sites including Yahoo Homes, AOL Real Estate, HGTV’s FrontDoor, HotPads and MSN Real Estate.
Zillow and Trulia both get more traffic than the third-biggest national portal, realtor.com, but capture only a fraction of the more than $10 billion real estate brokers and agents are thought to spend to market their services online, Zillow CEO Spencer Rascoff has noted.
The National Association of Realtors, which licenses the realtor.com domain name and trademark to Move Inc. under the terms of a 1996 operating agreement, had reportedly sought to block the deal on antitrust grounds.
The Federal Trade Commission took its time reviewing the merger, which was announced in July and approved by shareholders Dec. 18. The FTC made second requests for information from the companies in early September, and Zillow had agreed to hold off on closing the deal until Feb. 15, unless regulators wrapped up their review before then.
In the meantime, with NAR’s approval, media giant News Corp. acquired realtor.com operator Move, pledging to breathe new life into the former leader in real estate search.
An agreement between Move subsidiary ListHub and Zillow to feed listings data to the site will expire in April, and Zillow is working to secure direct feeds from MLSs and brokerages that don’t already provide them.
While the FTC is likely to have weighed the share of advertising dollars that the portal giants command and the percentage of consumer traffic they capture, another factor that may have complicated the review is the fact that Zillow, Trulia and realtor.com routinely cut deals with many of the nation’s largest brokerages and franchisors. These deals let big companies purchase advertising at favorable prices, helping them capture more leads from the popular popular search portals.
The FTC’s guidelines for reviewing mergers call for it to consider whether there will be adverse impacts on competition if sellers can discriminate by raising prices for certain targeted customers — like small brokerages — but not others.
If the FTC decides that a merger will harm competition, it can attempt to impose conditions on a deal, rather than simply blocking it.
Last year, for example, CoreLogic agreed to license national assessor and recorder bulk data to RealtyTrac, in order to address the FTC’s concerns that CoreLogic’s acquisition of DataQuick would reduce competition between real estate data providers.
In 2010 Fidelity National Financial Inc. agreed to sell several title plants and related assets in Oregon and Michigan after the FTC alleged that its acquisition of bankrupt LandAmerica Financial’s underwriting subsidiaries reduced competition in those markets.
If the FTC attempts to impose conditions on a deal or block it, the affected companies can challenge regulators’ findings in court.
According to a recent analysis of real estate ad spending by Borrell Associates Inc., real estate agents and brokers spend about 75 percent of their advertising budgets online. Although Borrell projects online ad spending by agents and brokers will decline by 2 percent this year, to $10.5 billion, Zillow and Trulia have plenty of room to take a bigger slice of that pie.
Zillow generated $197 million in revenue in 2013 — 69 percent increase from 2012 — and was on track to break $300 million in 2014 in its last earnings report. The nearly 61,000 real estate agents who paid the company to promote themselves on the site during the third quarter spent an average of $349 each during the three months ending Sept. 30, up from $264 during the same period a year ago.
Trulia brought in nearly $144 million in 2013 — more than double the cash it generated the year before — and was on track to see more than $250 million in revenue in 2014.
Borrell estimates that less than half (45.2 percent) of broker and agent online marketing dollars are spent on display advertising, however. The rest of is devoted to email (28.9 percent), paid search (13.8 percent), streaming video (6.1 percent), and “run of site” display ads (5.7 percent).