The TEK2day PropTech Outlook provides our perspective on where we believe the PropTech industry is headed over the next few years. Major themes include: I.) further industry consolidation and II.) AI-driven revenue opportunities and operating efficiency gains.
The TEK2day PropTech Landscape (link at the bottom of this article) includes company names, descriptions, CEOs, 2019 revenue estimates, financial sponsors and more. We cover 81 companies – including industry leaders such as CoStar Group (tkr: CSGP), MRI Software (private), Real Page (tkr: RP) and Yardi (private) – featured in an interactive format.
Further PropTech Consolidation on the Horizon
Similar to other Enterprise Software sectors, PropTech is a scale game. The M&A activity over the past number of years reflects this. We expect M&A to remain a major theme within the PropTech sector as strategic acquirers (traditional and non-traditional), and private equity firms hunt for acquisitions.
For strategic acquirers, the name of the game is scale. PropTech leaders such as CoStar wish to provide their various customer segments with one-stop shopping. Whether it be comprehensive CRE property data, benchmarking & analytics (see CoStar’s $450M STR acquisition), multi-family listings and more, CoStar has something for you. CoStar realized the benefits of scale early in its history as it worked to build comprehensive CRE property data coverage across the U.S. and U.K.
Richardson, TX-based RealPage – a leading Property Management software provider – is another strategic acquirer that has used acquisitions to build out its platform. RealPage recently announced its $580M acquisition of Buildium – a property management software provider focused on the SMB market. (For more on CoStar, RealPage and other PropTech companies, see our May 2019 “Real Estate Tech” article).
Non-traditional strategic acquirers such as Fortive (tkr: FTV) have moved into the PropTech industry. Fortive acquired Accruent in July 2018 for $2B. Accruent competes in the facilities management/ asset management segment of the larger Property Management space against companies such as RealPage, Entrata, MRI Software and Boston-based Building Engines (Building Engines recently acquired Synlio, a software company that manages the CRE RFP process). We expect to see more non-traditional acquirers compete for CRE software / “PropTech” assets given the predictability of CRE software revenue and cash flow streams as well as the relative “stickiness” of CRE software from a customer retention standpoint.
Cash rich Private Equity firms are primarily motivated to acquire in order to deploy their substantial cash positions. MRI Software, PayLease and RentPath are examples of PE-owned companies. We expect these private equity-owned companies (and others) to make their share of acquisitions to add features, functionality and customers. MRI for example announced eight acquisitions in 2019, including LEVERTON which we discuss in the “AI-Driven Opportunities” section below.
VC’s have also deployed significant capital into the PropTech sector. This can be observed in our interactive PropTech Landscape (last paragraph of this report) .
AI-Driven Opportunities
1.) The first significant “AI-Driven Opportunity” consists of leveraging machine learning, deep learning and other derivative AI technologies to provide customers insight toward operational processes such as commercial site selection, predicting cash flows and risk management.
example I: using a machine learning-powered model to predict local automobile traffic and weather patterns while simultaneously augmenting that data with local demographic and economic data to inform a site selection process for a retail property owner. AI-powered applications, tools and services are especially powerful when they leverage disparate data sets across multiple disciplines to inform a decision or process. Visualization tools such as Tableau (tkr: CRM) and Alteryx (tkr: AYX) are often incorporated into such decision support processes.
example II: leveraging machine learning-powered models to inform preventive maintenance business rules as part of a larger Facilities Management solution. This is especially powerful when deployed across a multi-tenant platform whereby all users benefit from gains made by the ML model(s).
2.) The second significant “AI-Driven Opportunity” consists of leveraging AI-powered tools to automate various workflows – thereby driving operating efficiency gains.
example I: NLP & OCR. Leveraging Natural Language Processing (“NLP”) and Optical Character Recognition (“OCR”)-based tools to extract billing data from a source document and auto-populating a destination document eliminating the need for manual data extraction and entry. MRI Software pursued a similar customer use case when it announced the acquisition of LEVERTON – a leading AI-powered data extraction solution for real estate and corporate documents – in July 2019.
example II: Conversational AI and Robotic Process Automation (“RPA”). RPA is used to automate discrete workflows and is increasingly utilized across Financial Services, Telecom and other industries to automate low value-added tasks and workflows. To learn more about AI-powered automation, search for TEK2day articles tagged with “AI” “RPA” “Artificial Intelligence” “Machine Learning” “Intelligent Process Automation” and “NLP”. We recently published an article on how AI may be used as a source of competitive differentiation within the Asset Management industry. Conversational AI applications are becoming increasingly common. Microsoft for example sees approximately 3,000 new conversational applications deployed on top of its Bot Framework each week.
PropTech Interactive Landscape
Click Here to access our proprietary, interactive PropTech Landscape. The TEK2day PropTech Landscape includes company names, descriptions, PropTech categories, CEOs, 2019 revenue estimates, financial sponsors (VC, PE and Corporate financial backers) and more across 81 companies. Reach us at jmaietta@tek2day.com with any questions.