While Zillow Inc. (Z:US) Chief Executive Officer Spencer Rascoff began talks to purchase No. 2 real estate website Trulia Inc. (TRLA:US) six weeks ago, the roots of the deal stretch back at least eight years.
Rascoff started thinking about combining the two companies a year after Zillow went online in 2006, the 38-year-old CEO said in an interview. He then began actively discussing the prospect of a deal internally three years ago. While formal talks didn’t begin until recently, Rascoff got to know Trulia CEO Pete Flint early on and kept in close touch with him, according to Rich Barton, Zillow’s executive chairman who passed the CEO job to Rascoff in 2010.
“When I set my mind to something, I can be persistent and patient,” Rascoff said in a phone interview. “The reason I’ve always championed this combination is I think it’s very important to operate multiple real estate brands.”
Rascoff’s longheld ambition for a deal was consummated yesterday, when Seattle-based Zillow said it would acquire San Francisco-based Trulia in an all-stock transaction valued at about $3.5 billion. The purchase fits with the CEO’s strategy of creating a family of real estate brands helmed by Zillow, with Trulia joining New York property website Streeteasy.com and apartment-search site HotPads Inc. as part of the portfolio. Rascoff has been methodically acquiring disparate sites after cultivating some tie-ups for years; with Streeteasy, he said he eyed it for five years before pouncing.
Rascoff has shown a penchant for using deals to add growth. Since he took Zillow’s helm in 2010, the largest U.S. real estate website -- which had made no purchases in its first few years of operations -- has done nine acquisitions. Revenue has increased more than sixfold since Rascoff became CEO and Zillow’s stock (Z:US) has risen steadily. With more people hunting for homes online and property agents gravitating to the Web to appeal to clients, Rascoff is seeking to ensure Zillow remains at the forefront of the shifting behavior, said people who know and have worked with him.
“He never thinks things can’t be done,” said Zillow Chief Marketing Officer Amy Bohutinsky, who has worked with Rascoff for more than a decade. “If there’s just the slightest chance of it happening, he’ll say, let’s go do it.”
Rascoff’s challenge now will be to integrate Trulia into the Zillow family and make sure there’s enough differentiation between the sites to appeal to the broadest audiences and advertisers. At some point, the CEO will also have to turn the companies into moneymaking operations, since both are unprofitable.
Rascoff said in an interview that he recognizes there’s a long road ahead, given that Trulia is Zillow’s largest-ever deal. The company’s second-biggest acquisition was Streeteasy for $50 million in August 2013, according to data (Z:US) compiled by Bloomberg.
“This is a very large acquisition and it will take time for it to close and take time for it to make it sing,” he said.
Flint, who is joining Zillow’s board and will continue to lead the Trulia brand, said in an e-mailed statement that he has “known and respected Spencer for years” and that he’s “looking forward to getting to know him even better as we will be working closely together.”
Rascoff, who majored in government at Harvard University, started his career in finance in 1997. After a stint at Goldman Sachs Group Inc. as an investment banker, Rascoff worked at private equity firm TPG Capital. While there, he co-founded online discount travel company Hotwire in 1999, which later became part of Expedia Inc. (EXPE:US)
At Expedia, Rascoff met Barton, who had spun off the travel site from Microsoft Corp. (MSFT:US) and then founded Zillow in 2005. Barton hired Rascoff to run Zillow’s marketing that same year. When the real estate website started bringing in revenue through advertising and expenses started to build, Rascoff became chief financial officer in 2006, later taking on the title of chief operating officer in 2008 before becoming CEO.
“Spencer was the first or second person we called up to bring on board” to Zillow, Barton said in a phone interview. “Even before day one, I targeted Spencer as the guy who would hopefully replace me as CEO.”
Zillow’s portfolio strategy has been in development for the past few years. The company, which provides tools for people to find homes online and which primarily generates revenue through advertising, has been looking at other services they could provide outside of promotions. In 2011, when Zillow acquired an online-listing startup called Postlets, the idea of a family of brands -- much like Expedia has Hotels.com and Hotwire -- became clearer. Zillow’s 2011 initial public offering also raised a war chest of cash for acquisitions.
“Having multiple brands allows certain brands to appeal to certain users so we can grow our audience and grow the number of home buyers and renters,” Rascoff said.
With Trulia, discussions heated up six weeks ago when Zillow approached its competitor, Rascoff said. Trulia was codenamed Tiger and Zillow codenamed Zebra, with communications about the deal requiring the password of jungle, he said.
Rascoff is highly communicative as CEO, answering queries on jobs and career community Glassdoor Inc., posting videos on YouTube and tweeting prolifically. Barton said he “dragged” Rascoff onto Twitter in 2009. While the CEO was initially reluctant to adopt another communication platform that he would have to check and respond to, Rascoff soon embraced it, Barton said.
Since then, Rascoff has used Twitter and Facebook to amass questions from the American public for a discussion about housing last year with President Barack Obama, an event that helped build Zillow’s profile.
“He’s one of the top five CEOs on Twitter, just in terms of the amount he uses the platform and the creative ways he uses the platform,” said Bill Gurley, a Zillow board member and a general partner at venture capital firm Benchmark.
The CEO is also known for his multitasking. Jane Park, CEO of Seattle-based e-commerce startup Julep Beauty Inc., of which Rascoff is a board member, said she once had a meeting with him where he texted her to bring sneakers. When she got to his office, Rascoff invited her to hop onto a treadmill so they could both exercise while they talked business.
“I had to try to balance having this substantive conversation about our hardest issues while walking on a treadmill and you’re talking to Spencer Rascoff, who thinks really fast,” Park said in an interview.
Rascoff only needs a few hours of sleep a night, said Barton. Barton said he once had to tell Rascoff during a performance review at Expedia to stop sending e-mails to his team at two or three in the morning.
“He’s one of the most productive people,” said Karl Peterson, a senior partner at TPG who recruited Rascoff to the private equity firm and helped found Hotwire. “Anything we needed to get done, we’d give to Spencer.”
With Zillow, Rascoff said he’s looking 10 years to 20 years ahead. To hit home how the company should be thinking long term, he said he has made it taboo to discuss or look up Zillow’s day-to-day stock price. Many of the investments that the company has made will take years to pay off, he said.
Zillow and Trulia are currently at the beginning of a transformation in how people purchase and find information on homes, he said. The companies estimate that real estate professionals spend $12 billion in marketing a year, with the combined revenue of Zillow and Trulia only making up less than 4 percent of the market. That leaves plenty of room for growth, especially in areas like rentals, he said.
As Zillow builds out its family of sites, more deals are also likely, Rascoff added.
“It will take many years for this to play out as my plans unfold,” Rascoff said. “This certainly won’t be our last acquisition, I can assure you of that.”
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