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Zillow sells Market Leader for massive loss

Buyer is Perseus Division of Constellation Software

Zillow Group (Z and ZG) announced Thursday that it plans to sell Market Leader, a customer relationship management system for the real estate industry, to the Perseus Division of Constellation Software, an international provider of software and services.

Trulia acquired Market Leader in August 2013. Market Leader then became a Zillow company when Zillow completed its acquisition of Trulia in February of this year.

Trulia paid approximately $170 million in cash, plus stock considerations for Market Leader in 2013. All told, the purchase price for Market Leader was reported to be as high as $355 million.  

Zillow announced Thursday that it is selling Market Leader to Constellation Software for $23 million.

Also included in the deal are the other lead generation businesses housed within Market Leader, including Market Leader Leads Direct and

Trulia’s relationship with Market Leader began with much fanfare.

At the time, then-Trulia CEO Pete Flint said, "We are very excited that the deal is official and we can now provide the real estate industry with the finest marketing and software tools, all under one roof." 

But in June 2014, Trulia laid off 85 of Market Leader’s employees, and announced the departure of four of Market Leader’s senior executives – President Ian Morris, as well as Jacqueline Davidson, Market Leader’s chief financial officer; Sarah Daniels, Market Leader’s chief marketing officer; and Alex Lange, Market Leader’s chief technology officer.

The 85 employees that Trulia laid off were “primarily in the sales and general and administrative functions.” The company expected to spend between $4-6 million in facilities-related costs, severance and employee benefits and other third party expenses on the “reorganization.”

Market Leader currently has 102 employees, according to a release from Zillow.

In the months since the Trulia-Zillow merger was completed, Zillow sold ActiveRain, the social networking, blogging, and training platform for the real estate industry, to the Ben Kinney family of companies.

Trulia acquired ActiveRain as part of its acquisition of Market Leader.

In its earnings presentations since the completion of the Trulia deal, Zillow consistently excluded Market Leader’s revenue from its overall revenue figures.

In its second quarter earnings statement, for example, Zillow reported its total revenue with Market Leader separate.

From Zillow’s second quarter earnings statement:

"Total revenue excluding Market Leader, increased 25% year-over-year to $158.7 million from $126.8 million in the second quarter of 2014. Looking at our primary revenue category, marketplace revenue was $145.5 million, which includes $12.5 million of Market Leader revenue and grew 29% year-over-year, excluding Market Leader, marketplace revenue would have grown 38% year-over-year."

In the first quarter, Zillow reported that Market Leader pro forma revenue decreased 11% to $13.6 million from $15.3 million in the first quarter of 2014.

During its second quarter earnings call, Zillow’s chief financial officer, Kathleen Phillips, said that Zillow was “continuing to evaluate our strategic opportunities” for Market Leader.

“We're very mindful of the fact that the Market Leader clients are also important partners of ours,” Phillips said. “So, we're focused on making sure that we make a decision that is right for our business, but also serves the interest of those clients and our partners as well.”

Now, Zillow has made the decision to sell Market Leader at a big loss, but Zillow said that the company is now in the right hands.

“Market Leader provides the real estate industry's leading customer relationship management system and is an important tool for tens of thousands of agents and brokers,” Philips said.

“Since we closed our acquisition of Trulia, we've been assessing how Market Leader would fit with our broader business strategy, and we felt that Market Leader's customers and employees would be best served by a company with deep roots in delivering enterprise software, and by a company for whom Market Leader would be a core offering,” Phillips continued. “We chose Constellation as the buyer because they are excited about investing in Market Leader products, supporting Market Leader customers, and continuing to work with Market Leader employees.”

Phillips said that Zillow will continue to partner with Market Leader through Zillow Tech Connect, which sends its Premier Agents' leads into any CRM of their choosing.

“Market Leader has a proven history of delivering excellent tools and services and comes with a great team of people behind the product,” said Dexter Salna, president of Perseus. “We see an incredible opportunity to take the solid foundation that already exists to invest and grow Market Leader's products, services and employees.”

The sale is expected to close early in the fourth quarter.

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