Rental listings company RentPath, which is in Chapter 11 bankruptcy proceedings, has withdrawn from a planned buyout by CoStar. The decision came just weeks after the federal government sued to block CoStar Group, the real estate giant that owns Apartments.com and other rental sites, from completing the acquisition.

CoStar and RentPath on Wednesday filed a joint motion to dismiss the complaint, effectively nixing the deal.

Daniel Francis, deputy director of the U.S. Federal Trade Commission’s Bureau of Competition, made this statement:

“This is terrific news for consumers. The CoStar/RentPath deal would have combined two close competitors and harmed competition in markets across the country. I’m very grateful to the FTC team—including lawyers, economists, and other team members—who worked tirelessly through the COVID pandemic so that consumers will continue to benefit from competition in online rental advertising markets.”

The companies announced in February that they’d agreed CoStar would buy the struggling RentPath for $588 million pending approval by a bankruptcy court and regulators. The court approved, but the U.S. Federal Trade Commission (FTC) did not. Earlier this month, the FTC filed a complaint to stop the acquisition, saying it would give CoStar a monopoly in online listings of large rental complexes across most U.S. markets.

RentPath blinked first, announcing this week that it had unilaterally scotched the acquisition. “The company believes termination of the agreement is in the best interests of its customers, employees and all of its stakeholders,” RentPath announced in a statement

CoStar CEO Andy Florance said only that his eyes are on the future.

“In business, like in hockey, you do not win by skating to where the puck was. You win by skating to where the puck is going to be,” Florance wrote.

RentPath did not respond immediately to a request for comment from the AIM Group.

The question is how will RentPath forge ahead given its debts and sagging revenue?

In its statement, RentPath wrote: “The company’s Chapter 11 plan remains backed by its lenders including well-known alternative asset management firms with billions of dollars under management and strong track records of successfully investing in businesses in similar circumstances.”

RentPath states further that traffic and leads to its network of sites, which also include Rent.com, ApartmentGuide.com, Rentals.com and Lovely.com, “have never been higher.” The firm states that traffic growth during the second half of 2020 is 40% up year-on-year. 

That may be reflective of a pandemic-related browsing boost across the wider industry, but it doesn’t say anything about revenue, and it was revenue problems that led RentPath into bankruptcy in the first place.  

In FY2018, RentPath tallied $259 million in income, making it No. 2 behind CoStar’s Apartments.com in terms of revenue in the U.S. rental listings market. The following year, RentPath had unaudited revenue of $227 million, an 8% drop. In January of this year, the company hired advisors to restructure $650 million in debt.

RentPath was caught in a downward spiral, forced to cut rates to keep up listings volume. In announcing CoStar’s agreement to buy RentPath, Andy Florance explained RentPath couldn’t keep up with the increasing costs of Google search words, a key driver of traffic for most listings firms. RentPath was also struggling to invest in its technology.

If CoStar can’t buy RentPath, its financial troubles will probably continue to eat away at its business. Meanwhile, RentPath is searching for other buyers. “The market for real estate technology businesses continues to be very strong as recent M&A transactions have highlighted. RentPath has developed and positioned its products to occupy a fundamentally critical point in the residential rental value chain,” Stephen Spencer, managing director at the Houlihan Lokey investment bank and advisor to RentPath’s lenders, wrote in the RentPath statement.

And CoStar is sure to seek out other acquisitions. Just this month, CoStar said it will buy HomeSnap, a vendor of software tools for real estate agents, for $250 million (The FTC approved that deal.) CoStar followed that move by buying the URL Houses.com for an undisclosed sum to further its bid to take on Zillow in for-sale homes listings. CoStar has also said it’s one of several parties negotiating to buy out CoreLogic, a vendor of real estate data, with a market cap of $6 billion.

This article has been updated with a comment from the deputy director of the FTC’s Bureau of Competition and news of RentPath’s and CoStar’s motion to dismiss.

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