Commissions vs. Contracts: Blending Risk and Reward

Culture Whisperer Wanted... Imagine that you're the chief culture officer (CCO) for CB Richard Ellis. Your task is to bind together the business cultures of two industry giants -- CBRE and the Trammell Crow Company.

The announcement (Oct 31) that CBRE would acquire TCC for $1.79 billion creates a true industry behemoth with combined revenues close to $3 billion and over 20,000 employees, which qualifies it for the Fortune 500 list.

Brokerage (transactions) currently accounts for about three-quarters of CBRE's existing revenues. Contrast this with TCC, which derives a majority of its revenue from "integrated account management and outsourcing solutions" (corporate services).

After the acquisition, CBRE's brokerage revenue will fall from 74% to 64% of total revenue and "contractual revenues associated with outsourcing" will increase from 8% to 18% of total revenue. These contractual revenues are "stickier" than commission revenue (and therefore more highly valued by stock market investors).

The fun part for me is to imagine how (previously competitive) CBRE/TCC offices in major markets around the U.S. will be combined to maximize their respective values. As the chief culture officer, you would be busy!

CBRE CEO Brett White in his conference call on Oct 31 with securities analysts said that he expects the two companies to produce "synergy savings ... somewhere north of about $65 million."

Will it work? How would you integrate the two firms?

-- Peter Pike