In Conversation With Andy Florance, CoStar Group CEO: Europe and Acquisitions

In part two of Online Marketplaces' one-to-one interview with CoStar Group Founder and CEO Andy Florance (part one is here), we turn our attention to CoStar Group's European expansion strategy and zoom out to get Florance's insights on industry topics including talent and customers.

The burning question is, why is now the time to expand CoStar Group's footprint into Europe?

After branding Rightmove as 'vulnerable' on-stage in Barcelona, does Florance see vulnerability as being the main driver of investment opportunities for real estate portals in Europe?

"There are 70-80 portals out there. I am in the minority where most PEs, major investors, and institutions believe that once they have a share, they can never be knocked down and they can do what they want to their customers and the customer can’t do anything.

"I don’t believe it. My experience is in operating these companies and changing positions and I believe that you can compete and grow.

"The capital sources in Europe believe this is not the case. They believe market leadership is a coupon, you’re a taxation authority, so once you own Idealista (for example) you have the right to tax all the agents in Spain.

"I believe that between regulation, government, and customers, you can’t do that forever. Does that translate into being ‘vulnerable’ per se? I don’t know, but I do think there’s a lot of room to grow in this diverse, highly populated marketplace with all these great portals out there."

Florance is also in the minority when it comes to taking portals across borders.

"There’s another theory I don’t subscribe to—that there’s no scale advantage, that you cannot move your tech across borders from Luxembourg to France to Portugal to Italy.

"It’s kind of silly when you say the French market is completely different from the Spanish market when the number one navigation source for the consumer is Google. Google is in France, Google is in Spain. The infrastructure for all these things is multinational."

After snapping up the British challenger portal OnTheMarket for circa £99 million in December 2023, CoStar Group has circa $5 billion in cash and cash equivalents to invest in Europe and beyond. How much is Florance willing to spend on his next dip into the European market?

"I would say OTM is a decent scale—we could go a little bit smaller, but not a lot smaller.

"It’s difficult for us to go too small. We need some scale, and a management team, and we want enough customer relationships that you can work with.

"We observed the REA Group/Rightmove situation. If you look at CoStar Group’s balance sheet we have the technical ability to do big deals like that.

We can flex to billions, but we’re comfortable in the $100 million range. We’re not comfortable at the $20 million range.

"We are capable of doing multiple billion-dollar acquisitions. We could do two $1 billion buyouts every year indefinitely, so long as we perform for the shareholders, we show them we are responsible, grow value and have an eye for good EBITDA path, we’re effective in competing."

And how much movement can we expect from CoStar Group in 2025? Florance is optimistic.

"We began acquiring companies in 1995, and over the next 25 years, we’ve averaged two acquisitions a year, which is a lot. So I anticipate that the past will be a good predictor and maybe some acceleration."

One of the most difficult things about operating across borders is staying focused. Does CoStar Group have the means to win a war on both sides of the Atlantic (and maybe even further afield)?

"As you acquire companies, you acquire talent. There are two types of companies to acquire. One is where the Principal is ready to leave and you never see them again. But the second has a hungry Principal who is engaged, involved and wants to see their business grow. We take our institutional knowledge and combine it with their local knowledge and it is a powerful solution.

"More than half of our senior leadership was acquired, not hired. Some of our very best leaders are people we met when we acquired another company.

"[When we acquire a company] we don’t act like a PE firm and hire in a new management team. We look at who loves this business, and the other thing that I think is helpful is that you can get leeway from companies if you respect their traditions and listen to the new voices in the room."

Our time together is nearing an end and I can only ask one more question.

Andy Florance, what riles you up? Again, the answer is swift.

"Do not forget who your customer is.”

"I would say that portals are moving into a place where they don’t think the customer figures into the equation. The customer clearly is being disregarded and I know it is possible to be in harmony with your customer and your shareholder.

"I would say we have examples in the United States, UK, Spain, and Australia that I would think the customers would agree the portals are moving out of harmony.

"It’s not going to end well for you if you believe your customer belongs to you in some way. If you think they’re your property, then you’ve got a problem."