January 16, 2019
Charles Moldow
I can finally share the incredible news that States Title, in which Foundation Capital led the Series A, has closed its acquisition of North American Title Group’s underwriter and the majority of its retail title business. I use the word “incredible” deliberately, because so many things about this deal and how it came together are so crazy and improbable that it’s hard to believe it’s actually happened. Let me enumerate a few of them.
Crazy thing #1: States Title, our two-year-old title-insurance startup, acquired these businesses from Lennar, the second largest homebuilder in the country and a Fortune 100 company. The deal isn’t your typical M&A or fundraising announcement. In fact, it’s almost without precedent in our industry. Bottom line: a 22-person tech startup somehow just acquired a 1,000+-person incumbent. That’s akin to Tesla, circa 2005, acquiring GM.
Crazy thing #2: The germ of this deal started two years ago, before the company had hired a single person or built their initial product, when Max Simkoff, States Title’s Founder and CEO, was introduced to Tom Fischer, the CEO of North American Title Group. Instead of the somewhat adversarial relationship that often forms between startup and incumbent, Max and Tom found common points of shared vision for the title company of the future. What grew over time from that initial meeting was the consensus that it was in the best interest of all parties involved for Lennar to sell its title business to States Title.
Crazy thing #3: But how was a small, Series-A-stage company going to afford a company that generates 170M+ in annual revenue? That’s when Max got me involved. After exploring some private equity and bank debt options, we concluded that that route would be too massively dilutive. Max and I figured out that the only way this deal was going to work was if we could convince Lennar to agree to an unusual form of purchase agreement called seller financing. Put simply, it meant that Lennar, itself, would extend us the debt to buy its title-insurance asset.
Cut to several months of complicated structure discussions later, and States Title—our little startup with the big ambition of transforming the title and settlement industry—has overnight become one of the country’s largest issuers of title insurance, with hundreds of closing agents, in 100+ offices, across nearly every state!
Credit to the forward-thinking executives at Lennar. They were operating a profitable business, but recognized, once they understood States Title’s mission, that they couldn’t hold onto this asset complacently. They had the foresight to see that the best and boldest strategy was to marry North American Title to this innovative brand. Because, with state-of-the-art technology—from mobile closing to predictive analytics—States Title will remake the industry for the better, for agents and applicants alike.
Credit to Max and his team, for taking a number of wild developments and deftly pulling off the boldest deal in recent memory. States now has a national distribution and sales infrastructure that otherwise would’ve taken the company years to build out. It has leapfrogged from scrappy challenger to major player, and the combined company is well-poised to not only be the best title provider in the country, but eventually, to transform the entire mortgage process.
On behalf of myself and my partners at Foundation Capital, I want to extend our congratulations to our friends at Lennar, and to Max and his newly enlarged States Title team! There’s still the hard work of merging the two companies, of course. But if States Title’s first act was pulling off the impossible, then I’m more than a little excited for what comes next.