Re/Max Is For Sale At Good Location

Sep.29.13 | About: RE/MAX Holdings, (RMAX)

RE/MAX Holdings, Inc (NYSE:RMAX) will offer 10,000,000 shares at an expected price range of $19.00-21.00 in its upcoming IPO expected on October 3rd, 2013. The Denver, Colorado based real estate brokerage franchiser plans to raise $200 million through the offering; if it can reach the midpoint of the expected range at $20.00, RE/MAX will command a market value of $611 million.

RMAX filed on July 12, 2013
Joint Managers: Morgan Stanley, BofA Merrill Lynch, J.P. Morgan
Co-Managers: William Blair, RBC Capital Markets, JMP Securities

SUMMARY
Founded in 1973, RE/MAX is among the world's leading franchisers of real estate brokerage services. RE/MAX recruits agents to operate under the RE/MAX name and use the well known red, white and blue hot air balloon RE/MAX branding while retaining a high level of independence in how they operate their businesses. RE/MAX agents retain a large portion of their commissions in exchange for fixed fees and a share of office overhead expenses, a model designed to attract the best agents who are able to benefit the most from commission payments. The majority of RE/MAX's revenues are derived from contractual fees and dues paid by agents within its franchise network. RE/MAX currently has over 90,000 agents and 6,300 offices spread across over 90 countries.

Valuation
RE/MAX offers the following figures in its S-1 balance sheet for the six months ending June 30, 2013:

Total Revenues: $78,316,000
Net Income: $14,955,000
Total Assets: $238,070,000
Total Members' Deficit: $169,094,000

While RE/MAX has not yet returned to its 2008 level of revenue, it has regained profitability over the past two years. Given this company's streamlined business model and scant overhead, it has every likelihood of continuing the trend of increasing its income steadily as its agent membership climbs back to its pre-crisis figures.

CONCLUSION
It's hard to say no to RE/MAX, given its proven pre-housing crisis successes, its long-standing, effective executive team, and its return to growth in the past two years. The company had enjoyed a CAGR in the neighborhood of 30% over the course of its history up until 2006; with a recovering housing market, and the rapidly accelerating growth its agent base has shown in the past two years, there's little reason to think that it won't soon return to its pre-crisis strength.

The management team that led the company to success in the past is still firmly in place, as well, and certainly has the industry experience to navigate the recovering market.

If the offering prices in the $19 to $21 range and the deal size is not increased, we would rate this IPO a strong buy. It should be noted that the underwriters have indicated a pricing range which is very favorable compared to Realogy (NYSE:RLGY) which has been a very successful IPO for the company and its investors.

BUSINESS
Despite RE/MAX's strong branding and market share, it faces several potent competitors, some of which are better capitalized and have significantly more resources available. The largest of these are Realogy Holdings Corp , which franchises the popular Century 21 and Coldwell banker brands, and Berkshire Hathaway Home Services (NYSE:BRK.A).

Not surprisingly, RE/MAX's business suffered significant negative impacts during the housing crisis between 2006 and 2011; over that period, the firm's total number of agents declined by 26.8% from its 2006 peak of 120,000 agents. However, RE/MAX returned to growth in a recovering market in 2012, adding 1,532 agents in that year, and has increased that growth in 2013, having added a net gain of 3,466 agents through August 31, 2013, including 2,110 within the United States.

MANAGEMENT
David and Gail Liniger, RE/MAX's original founders, have retained their positions as Chair and Vice Chair of the company, showing an impressive stability within the company. The pair have been with the company for approximately 40 years, and have grown it from the ground up into its current impressive state. CEO Margaret M. Kelly, who has held that position since 2005, also has a lengthy history with RE/MAX, and has worked in leadership positions at the firm since 1987.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in RMAX over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: We plan on participating in the RMAX IPO. This article was written for informational purposes. Investors should read the S-1 prepared by the company and consult with their financial adviser before making any investment decisions.