Dear Industry Colleagues,

Because Turk & Co represents many buyers and sellers of title companies, we gain unique perspectives and understanding that others may not. We believe in sharing this practical insight because it can significantly enhance the success of any title company, whether they plan to sell or not. Embracing a mindset of abundance is always far better than one of scarcity.

I hope you find this blog useful and informative. It’s the second one in a series (last one reviewed Business Mix and can be found here). This blog will review Business Process Outsourcing and Affiliated Business Arrangements in the context of what today’s buyers like to see when evaluating a title company for a Merger or Acquisition.

–Howard Turk

Business Process Outsourcing

Markets fluctuate and having a variable cost structure wherever possible enables a company to adapt to changing business conditions. One way to create a variable cost structure is to outsource select workflow elements. We’ve been saying this for years (see 2017 article at this link).

Aside the value of enabling a variable cost structure, outsourcing saves a company money, improves efficiency, and provides better and faster deliverables so that the company can focus on core services. Outsourcing levels the playing field and gives any independent title company access to the same economies of scale, efficiency, and expertise that the biggest title companies enjoy. Every large independent title company or direct of a title underwriter we’ve ever seen has some sort of outsourcing program (some even own offshore outsourcers).

Bottom line: Buyers love to see a well-conceived and executed outsourcing strategy. No buyer is intent only on maintaining the status quo. They want the company to grow and that inevitably requires more people. We are now turning the corner on transaction volumes being reduced by high interest rates. Volumes are starting to climb again. Many title people who were laid off in the downturn we are emerging from will not return and it is a certainty that good staff will be coveted and hard to find. One way to cope with this problem is to use the staff you have in the best way possible and outsource non-core functions. If you are good at this, your numbers will reflect it and buyers will
notice.
Tip: If you’re unsure how to proceed or which vendor to choose, feel free to call us. Selecting the wrong vendor can be disastrous so we offer a complimentary introduction if needed.

AfBAs
We strongly support RESPA-compliant Affiliated Business Arrangements (AfBAs) and believe their popularity will continue to rise. While some buyers may approach them with caution, savvy buyers will recognize their non-exclusive nature and consider key performance indicators such as the penetration rate (i.e. the percentage of the agency’s transactions closed by the AfBA). Occasionally, a discerning buyer may seek modifications to the AfBA’s operating agreement. Overall, title businesses with AfBAs are marketable, albeit requiring some strategic handling.

We believe that the recent NAR settlement will drive Realtors to seek income from title companies and lead to more AfBAs.

As with anything, there is a right and a wrong way to establish and construct a JV or AfBA. Prudence dictates having the structure and disclosures reviewed by a legal professional familiar with the latest RESPA guidelines.

Bottom line: A track record of successfully standing up title AfBAs or JVs is likely to continue to be viewed upon favorably by buyers.

We understand that some title agencies may not be able to wait for the information in the upcoming blogs about What Buyers Want.  If you need immediate answers or assistance, please reach out to us at , or call us at 310 294 9199.