What happened

Shares of commercial real estate data and analytics company CoStar Group (NASDAQ:CSGP) got a big lift this morning, rising more than 10% in early trading. The stock was still up about 9.6% as of 11:35 a.m. EST on Wednesday.

The reason: CoStar announced Tuesday evening that it will purchase RentPath, an operator of rental property websites, out of Chapter 11 bankruptcy.  

Apartment for rent sign

Image source: Getty Images.

So what

CoStar will pay $588 million in cash to acquire RentPath's business, which includes the Rent.com, ApartmentGuide.com, and Rentals.com websites. The sites list approximately 28,000 properties and attracted 21 million monthly visits and almost 9 million monthly unique visitors in 2019.

RentPath generated approximately $227 million in sales and $47 million in adjusted EBITDA last year. But as CoStar explained in its statement announcing the purchase, RentPath failed because its heavy debt load prevented it from making the necessary investments for the transition from paper booklets listing apartments to the web.

Now what

CoStar, with its $1.2 billion in net cash on the balance sheet and powerful cash-generating business ($413 million in free cash flow over the past year), has the money to make those needed investments, and combined with synergies with its own business, believes it can do better.

Judging from today's price action, investors agree.