Calabasas, CA-Based Brokerage Lacks Scale of Large Rivals Such As CBRE and JLL But Hopes to Find Power In (Transaction) Numbers
Seeking to become the first national commercial real estate
brokerage company to go public since HFF Inc. in 2007, Marcus & Millichap, Inc. this week disclosed that it has filed a registration statement to sell stock in the company in an initial public offering.
The company, privately held since its 1971 founding by George M. Marcus and William A. Millichap, plans to list its common shares on the New York Stock Exchange under the symbol MMI. Marcus & Millichap estimated the amount to be raised at up to $103.5 million. However, the company hasn’t yet disclosed the exact number of shares it will offer, their expected selling price or when the IPO will come go to market.
Marcus & Millichap officials declined to comment, citing the quiet period prior to an IPO mandated under U.S. Securities and Exchange Commission regulations.
Marcus & Millichap's 381-page prospectus, however, appears to lay out several motivations and strategies for tapping the public market. The firm invoked the Jumpstart Our Business Startups Act (or 'JOBS Act') to file IPO plans confidentially in last June. Its S-1 filing notes attractive CRE investment yields, improving property fundamentals and continued availability and cost of financing.
The IPO calls for Marcus & Millichap to exchange a portion of its common stock shares for debt shares held by founders Bill Millichap and George M. Marcus, who would then cash out by selling those shares as part of the offering.
Also, the company plans to strengthen its niche in national investment sales and financing and advisory services, while at the same time tapping public markets for capital to expand its national platform -- grabbing a larger share of high-dollar institutional transactions and growing its capital markets and advisory business to compete with both national and global rivals and regional or boutique firms as the CRE services industry continues to consolidate.
Marcus & Millichap currently specializes in sales and financings on smaller private-client deals -- primarily apartment, shopping center and hotel properties as well as office and industrial buildings valued at under $10 million. Those smaller deals make up roughly four out of every five CRE transactions in the U.S., according to M&M, citing CoStar COMPs data in its prospectus, and noted it has led all U.S. brokerages in terms of the annual number of transactions for the last decade.
"As the leading investment sales and financing firm in our segment, we believe we are ideally positioned to capture significant growth opportunities in our market," the company said.
There's plenty of room to grow, especially on the capital markets side. In 2012, only 9% of Marcus & Millichap revenues came from financing, consulting, advisory and other fees. The company reported total revenue of $385.7 million and net income of $27.9 million in 2012, up strongly from $274.7 million and $13.5 million in 2011.
The company took a step to win more of the institutional business in 2011, introducing Institutional Property Advisors (IPA), a division serving major multifamily investors. IPA helped M&M rise from the 7th-ranked investment brokerage firm by dollar volume in transactions $25 million and above in 2010 to No. 4 in 2012, providing a model its expansion into the institutional retail and office sectors, the company said.
Citigroup, Goldman, Sachs & Co. JMP Group Inc. and William Blair & Co. will underwrite and co-manage the offering.
To Be Public, Or Not To Be, That is the Question
David Gold, REIT analyst for Sidoti & Co., noted that, after attaining a certain size and scale, brokerage firms at some point have to decide whether they want to be publicly traded with all its costs and risks, but also being able to raise public money in order to fund growth, and to offer stock as a currency for acquisitions, hiring and retention.
"Over the last few years, we've seen growth among the larger players as the smaller companies get picked off," Gold said.
That said, publicly traded CRE companies aren't always predictable enterprises in a market that rewards predictability, Gold said.
"When you're a private company, it really doesn't matter if a transaction closes on Sept. 30 or Oct. 1," he added.
More Companies Testing IPO pool
The timing for such a move appears fortuitous as IPO activity is again approaching pre-2008 levels. As of September 4, 2013, 131 IPO pricings have been announced year to date, versus 91 this time last year, Renaissance Capital said in its Fall 2013 IPO Preview.
Some 110 companies are looking to raise about $31 billion, with at least 75 other names likely to have filed IPO plans confidentially under new JOBS Act guidelines
The last major brokerage firm to go public was HFF Inc. (NYSE: HFF
) in 2007. While more than 90% of M&M’s revenues are derived from brokerage commissions, HFF is a real estate financial intermediary providing investment sales and capital markets services, including loan servicing, structured finance and debt and equity placement to capital borrowers and providers.
HFF made its market debut shortly before the stock market cratered as the financial crisis engulfed the banking industry. Its shares gradually recovered and now trade at over $23.30 and HFF has a current market cap of $869.38 million.
No doubt Marcus & Millichap hope its timing is better as the economy continues to slowly strengthen. The fledgling firm had just five employees in the early years when William Marcus left Grubb & Ellis to form his own company, G. M. Marcus & Company, and joined with Bill Millichap, adopting the Marcus & Millichap name in 1978. Now based in Calabasas, CA, Marcus & Millichap has more than 1,100 investment sales and financing professionals in 73 offices, and closed more than 6,100 transactions in 2012, with a total deal volume of about $22 billion.
The company renamed itself Marcus & Millichap Real Estate Investment Services, Inc. (MMREIS) in February 2007. This past June, parent company Marcus & Millichap Co. formed a Delaware holding company called Marcus & Millichap, Inc. Prior to the completion of the IPO, the shareholders of MMREIS will contribute those shares for common stock in Marcus & Millichap, Inc., and MMREIS will spin off as a wholly owned subsidiary of Marcus & Millichap, Inc.