Vancouver-based Diversified Royalty Corp. has inked a deal with Sutton Group Realty Services to acquire the Canadian and U.S. trademarks and other intellectual property rights for $30.6 million. Immediately following the closing of the acquisition, Diversified Royal Corp. will license the Sutton Group trademarks back to Sutton for 99 years, in exchange for an initial royalty payment of $3.5 million per annum.
The transaction is expected to close before the end of June.
Founded in 1983, Sutton has more than 8,200 agents and 200 offices across the country. “Sutton is a franchise business with a history of innovation and a tradition of leadership in the residential real estate industry,” says Diversified Royalty Group in a news release. “Sutton began with a revolutionary business idea (charging agents a low fixed monthly fee) that remains current and relevant after over 30 years.”
The company says Sutton has a strong presence in B.C. and Quebec (together representing 45 per cent of their total agents). Ontario has about 40 per cent of Sutton’s agents while Alberta has less than five per cent.
Sean Morrison, president and CEO of Diversified Royalty Corp., says in the release: “The royalty acquisition from Sutton is… another step in our strategy of purchasing royalties from a diverse group of high quality multi-location businesses and franchisors.
“Sutton is a market leader with a strong national brand, an attractive business model and experienced leadership – all of which are key success factors for a royalty acquisition.”
Scott Shaw, president and co-founder of Sutton, says, “The transaction… provides Sutton with the ability to realize some of the value of the Sutton brand today and an even more exciting opportunity to invest in and grow Sutton.”
A management presentation for investors says that Sutton charges agents a “low fixed monthly fee (currently $110), which contractually increases by $2.50 each year on July 1.” It says virtually all of Sutton’s revenue is generated by the fixed monthly fees. “Sutton continues to offer a compelling model for top brokers and part-timers alike,” says the presentation. “Sutton is a pure franchisor (no corporate stores) with over 125 franchises across Canada.”
It says that Sutton’s agent count has remained steady during the last 10 years, “despite it not being active in developing new regions or acquiring brokerages.” It says after the transaction closes with Diversified Royalty Corp., “Sutton expects opportunities to be more active in expanding its agent count – primarily through investments and acquisition.”
Diversified Royalty Corp. describes itself as “a multi-royalty corporation, engaged in the business of acquiring top-line royalties from well-managed multi-location businesses and franchisors in North America.” The company’s objective “is to acquire predictable, growing royalty streams from a diverse group of multi-location businesses and franchisors.”
