New Details After Casago-Vacasa Deal: Property Manager to Sell Some Local Operations

How do you grow a property management company? Buy a bunch of smaller, local property managers as part of a rollup strategy? Use your own sales force to sign up homeowners?

That's one of the existential problems in property management and Casago – backed by investor Roofstock – is trying to solve it with its pending $128 million acquisition of Vacasa.

Vacasa, the largest U.S. based property manager with 36,500 homes under management in late December, stumbled over the scaling issue in its 15-year journey. It acquired many local property managers over the years, but found it was inefficient and costly, with many of the homeowners bolting for other management companies after the corporate takeovers.

In fact, Vacasa reportedly would lose 30% of its contracts after a typical acquisition. Vacasa switched a couple of years ago to relying on its salespeople to find new homes to manage, but never stopped the homeowner churn.

Sell Off Local Operations and Enter Into Franchise Agreements

In a strategy that hasn't been reported until now, Casago plans on trying to sell off some of the merged company's local operations and then entering into franchise agreements with the new owners, according to a source. That's in keeping with Casago's existing franchise model.

In so doing, the new company can make money in two ways — selling off local assets, and then earning franchise fees after the sales.

Casago and its investors will be setting the strategy when and if the deal closes in the next few months.

"Franchising will be the superior model for that much scale," said Jeff Hurst, CEO of Furnished Finder, a mid-term rental platform. "You get better buy-in from the local operators because it is their capital risk and reward."

Hurst said local operators often have superior knowledge about market tastes and how to grow their businesses.

Vacasa and Casago confirmed the broad outlines of the asset sales and franchising strategy in a financial filing: "Under the Merger Agreement, the Company [Vacasa] and Parent [Casago] have agreed to cooperate in good faith to explore the potential franchising of certain assets of the Company following the Closing."

Vacasa currently doesn't have any franchises while Casago operates both company-led businesses as well as franchises.

John Banczak Becomes Casago Chief Operating Officer

In other merger-related news not widely reported, John Banczak, the former Vacasa chief operating officer who parted ways with the company in March, was hired as Casago's chief operating officer in December.

The Deal Price May Not Be the Deal Price

The announced $128 million merger, which would see Vacasa shareholders receive $5.02 per share in cash, could be adjusted downward depending on homeowner churn, and Vacasa's liquidity.

That cash consideration would be reduced $0.10 per share for every 500-unit drop below 32,000 units that Vacasa has under management 12 days prior to the expected closing, according to the merger agreement. At that same juncture, the deal price could also likewise get adjusted downward if Vacasa's liquidity falls lower than $15 million.

Even if the $128 million deal price sticks, it's a drastic falloff from the $4.5 billion private valuation that Vacasa had in July 2021 before going public a few months later.

Vacasa wouldn't comment and Casago didn't respond to a request for comment about this story.