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Based in Calabasas, CA, Marcus & Millichap (NYSE:MMI) scheduled a $90 million IPO with a market capitalization of $531 million at a price range mid-point of $15 for Thursday, October 31, 2013.

Nine operating company IPOs are scheduled for this week. The full IPO calendar can be found at IPOpremium.

S-1 filed October 21, 2013.

Manager, Joint Managers: Citi and Goldman Sachs

Co-Managers: JMP Securities, William Blair

Summary

MMI is a leading national brokerage firm specializing in commercial real estate investment sales, financing, research and advisory services.

MMI has been the top commercial real estate investment broker in the United States based on the number of transactions over the last 10 years. MMI lost 4% on proforma revenue of $360 million in 2012. For the June 2013 six months MMI made 7% on revenue of $175 million.

Valuation

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing june 6 mos

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

Marcus & Millichap

$531

1.5

22.7

13.6

13.5

17%

Compare

CBRE Group Inc (CBRE)

$7,800

1.8

40.2

4.8

-7.7

Jones Lang LaSalle (NYSE:JLL)

$3,810

1.0

31.8

2.0

81.1

Both CRBE & JJL made money in 2012, MMI didn't

MMI has an accumulated deficit of -$52 million. On the IPO MMI wants to sell at a price-to-book premium and a P/E discount, see above table. With the real estate market booming in 2013 MMI should have made, not lost, money.

Conclusion

The rating on MMI is avoid at the price range mid-point of $15.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above:

Business

MMI is a leading national brokerage firm specializing in commercial real estate investment sales, financing, research and advisory services founded in 1971.

MMI has been the top commercial real estate investment broker in the United States based on the number of transactions over the last 10 years. MMI has more than 1,100 investment sales and financing professionals in 73 offices who provide investment brokerage and financing services to sellers and buyers of commercial real estate. MMI also offers market research, consulting and advisory services to its clients.

In 2012, MMI closed more than 6,100 sales and financing transactions with total volume of approximately $22 billion.

Area of focus

MMI focuses primarily on the private client segment, consisting of transactions with prices under $10 million. The private client segment consistently comprises over 80% of the total number of property transactions in the commercial real estate market.

MMI devotes its expertise and focus to the investment brokerage and financing business as opposed to other businesses, such as leasing or property management. Accordingly, its business model is unique from its national competitors, which focus primarily on the institutional real estate segment, and from its local and regional competitors, which lack a broad national platform.

As the leading investment sales and financing firm in the private client market segment, MMI believes it is ideally positioned to capture significant growth opportunities.

Market

The total value of U.S. commercial real estate assets was estimated to be $12 trillion at the end of 2012 based on data provided by CoStar and Real Capital Analytics.

Property sales in the commercial real estate sector for the four major categories of multifamily, retail, office and industrial properties priced at $1 million and above reached over $340 billion, or 37,000 transactions, in 2012.

This was a 41% increase in dollar volume and 32% increase in the number of transactions over 2011, following a 32% increase in dollar volume and an 18% increase in the number of transactions over 2010.

However, property sales in 2012 were still 16% below the 2007 peak in the number of transactions and 32% below the peak in dollar volume.

Competition

MMI competes in investment sales and financing within the commercial real estate industry. Its investment sales focus on the private client segment, which is highly fragmented.

For example, according to CoStar and Real Capital Analytics, for sales between $1 million and $10 million, the top 20 investment brokerage firms only constituted 27% of the U.S. commercial real estate market in 2012. The fragmentation of its market makes it challenging to effectively gain market share.

While MMI has a competitive advantage over other national firms in the private investor segment, MMI also faces competition from local and regional service providers who have existing relationships with potential clients.

Furthermore, transactions in the private investor segment are smaller than many other commercial real estate transactions. Although the brokerage commissions in this segment are generally a higher percentage of the sales price, the smaller size of the transactions requires MMI to close many more transactions to sustain revenues.

If the commission structure or the velocity of transactions were to change, MMI could be disproportionately affected by changes compared to other companies that focus on larger transactions, institutional clients and other segments of the commercial real estate market.

Competition

CBRE Group Inc (CBRE)

Jones Lang LaSalle

5% stockholders

Phoenix Investments Holdings LLC 80%, mostly owned by George M. Marcus

Use of Proceeds

MMI expects to net $44 million from its IPO from the sale of 3.3 million shares. Shareholders intend to sell 2.7 million shares, or 45% of the IPO.

Proceeds are allocated for general corporate purposes, including capital expenditures and working capital to expand its markets and services and potential acquisition of real estate businesses or companies, although there are no current agreements with respect to any such transactions.

Disclaimer: This FPRX IPO report is based on a reading and analysis of FPRX's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Marcus & Millichap