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Consolidation among industry software providers in general—and resident-screening companies in particular—will become increasingly common over the next few years, according to Dennis Smillie, president of the Ambler, Pa.-based technology consultant Multifamily Solutions Inc.
"I expect the consolidation, which we are just now seeing the beginning of, will continue for the next two to five years," said Smillie.
What`s driving these decisions by resident-screening companies to acquire competitors and related service providers? On one hand, it`s the evolving demands of their customers for more and better product features—for example, the need for highly sophisticated terrorist-screening capability.
Another reason, according to David Carner, a senior vice president at RealPage in charge of its OneSite resident-screening product, is that many of the multitude of smaller resident- screening companies are having difficulty competing.
He explained that the increasingly sophisticated technology needed by resident-screening companies makes it more costly and difficult for smaller companies to keep up. And they are also finding it more of a challenge to attract customers when larger software companies are offering a broader array of applications that can integrate very tightly with property management programs.
So rather than try to do battle with the giants, they find it more attractive to sell to larger companies that are eager to acquire new clients, additional revenue streams and new features.
For evidence of this desire to expand functionality, and market share, one need look no further than the First Advantage Corp., parent company of Registry-SafeRent.
In its latest moves, the company earlier this year acquired Landlord Protect, a New Jersey-based regional provider of resident-screening services; and U.D. Registry Inc., one of the top five national providers of resident-screening services. First Advantage acquired SafeRent in the fall of 2002.
These acquisitions not only provide additional economies of scale, but they also bring value to the existing clients of the acquired companies, according to Nevel DeHart, executive vice president of the Rockville, Md.-based Registry-SafeRent.
DeHart explained: "The key questions we ask are, `does the acquired company bring something to us, and can we bring something to the clients of the acquired company that will make them excited to be a part of the acquisitions?`"
For example, the SafeRent acquisition provided a nationwide landlord/tenant court-records database that First Advantage did not previously possess, he said.
DeHart, who indicated his company is very satisfied with the results of its past purchases, has not ruled out acquiring more companies down the road.
And Registry-SafeRent`s acquisitions are not limited only to resident-screening companies. In May, First Advantage Corp. also acquired Realeum Inc., a Web-based property management software firm based in Rockville, Md. First Advantage said the acquisition will provide its resident-screening clients with a property management software option that can seamlessly integrate with its resident-screening product.
Rather than acquire other entities outright, some resident-screening companies are entering into strategic partnerships in order to boost their capabilities.
For example, RealPage and SureDeposit recently announced an alliance whereby SureDeposit`s security deposit services will be offered to prospective tenants that are going through RealPage`s OneSite Screening process.
According to DeHart, there currently exist hundreds of tenant screening competitors. But Smillie predicted that the tenant screening industry will ultimately end with two to three major players serving the majority of the industry.
Smillie added, however, that a multitude of niche players will remain as there will always be "a role for small players that service specific types of markets."
Smillie, who also provides consulting services to Registry-SafeRent, argues that consolidation among resident-screening companies ultimately benefits the customer above all.
"The client is assured that product innovations in one company end up in another company. The cross-pollination is for the benefit of the customer," Smillie asserted.
While property management software companies are also looking to grow through mergers, Smillie asserted that, for the most part, they will not look to buy their resident-screening, online procurement and online leasing technology cousins. Those products will remain as separate, distinct categories so that customers can have a choice of different ancillary products to choose from when they sign onto any given property management software.
"The value for the customer comes from the property management software companies being able to seamlessly integrate these best-of-breed applications into their core operating platforms," Smillie observed.
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