Real Estate Tech Companies VTS and Hightower to Merge in $300 Million Deal

Two technology startups that help commercial-real-estate owners and brokers manage their businesses are merging in a deal that will create one of the largest technology companies in the industry, valued at about $300 million.

VTS and Hightower Inc., both based in New York, are merging in an all-stock transaction, executives at both firms said. The deal was expected to be announced to employees Tuesday.

The merged firm, which will keep the name VTS and be led by VTS Chief Executive Nick Romito, will provide customer-management tools for owners of more than 5.5 billion square feet of commercial space in the U.S. and U.K.

Investors in VTS include Blackstone Group LP and Boston-based venture-capital firm OpenView. Among Hightower’s major backers are Bessemer Venture Partners, Menlo Park, Calif., and Thrive Capital, a venture firm led by Joshua Kushner, whose brother,Jared Kushner, is married to Ivanka Trump, the president-elect’s daughter.

VTS and Hightower executives declined to discuss the value of the two firms, which together employ about 275. People familiar with the matter said the merged company is worth about $300 million.

Mr. Romito compared the deal with last year’s merger of Zillow and Trulia, two leading online firms in the residential-real-estate industry that competed against each other for a decade before joining forces.

“We just got to the decision a lot earlier,” he said.

VTS and Hightower are both about three years old and have been fierce competitors as the commercial-real-estate industry has moved from spreadsheets and email to cloud computing and big data. Their main service is giving landlords and brokers a mobile-friendly dashboard that tracks tenants and prospective tenants from the time they first inquire about space to moving in.

The status quo would have meant continuing to build “duplicative features,” saidBrandon Weber, chief executive of Hightower who will be chief product officer of the merged firm.

By joining forces, the two firms will be able to use their data troves to add analytic and forecasting services, executives said. VTS plans to develop features—both internally and through acquisitions—that will track such things as rents and lease expirations in a particular neighborhood. Landlords will continue to keep certain data to themselves, like specific lease terms.

The real estate industry increasingly is becoming more open minded about sharing general information, said Adam Marcus, managing partner of OpenView. “Everyone is waking up and realizing it’s better for everybody to have access to all the data,” he said.

Executives at the two firms said the deal doesn’t raise antitrust issues because there are a wide range of competitors, including such tech giants as Salesforce.com. They also pointed out that most landlords—especially smaller ones—don’t use either service.

The deal comes at a time when valuations of startup firms have come under pressure. In the third quarter of 2015, the height of the most-recent tech boom, new financing rounds put higher valuations on startups 86% of the time and lower valuations 4% of the time, according to the Silicon Valley Venture Capital Survey published by law firm Fenwick & West LLP.

In the third quarter of this year, those figures had fallen to 71% and 14% respectively, the survey found.

“That’s indicative of things slowing down,” said Barry Kramer, a Fenwick & West partner.

VTS was named View The Space when it launched its service in 2013. Back then, it primarily provided prospective tenants virtual tours of commercial spaces and analytics. The firm changed its name to VTS as it morphed more into a service for owners and brokers for tracking tenants as they moved through the leasing pipeline.

VTS’s investors also include Insight Venture Partners, of New York, and Trinity Ventures, of Menlo Park, Ca. RRE Ventures, of New York, is also a major investor in Hightower.