IPO Preview: Realogy Holdings

| About: Realogy Holdings (RLGY)

Ten IPOs are scheduled for the week of October 8. The full IPO calendar is available here.

Based in Parsippany, NJ, Realogy Holdings (NYSE:RLGY) scheduled a $1 billion IPO with a market capitalization of $3.5 billion at a price range mid-point of $25, for Thursday, October 11, 2012.

S-1A filed October 5, 2012.

Manager, Joint Managers: Goldman, Sachs; J.P. Morgan; Barclays; Credit Suisse.
Co Managers: Citigroup; Wells Fargo Securities; BofA Merrill Lynch; Credit Agricole CIB; Comerica Securities; CRT Capital; Houlihan Lokey; Lebenthal; Loop Capital Markets; Apollo Global Securities.

RLGY is yet another over leveraged Apollo Global Management (NYSE:APO) deal.

For example, post-IPO RLGY will have a net worth of $1 billion, but will owe $4.56 billion in long term debt.

Even worse, on the asset side of the balance sheet there is $4 billion of "water," in goodwill and trademarks. As a result RGLY's tangible book value post-IPO will be -$3 billion. Apollo always sucks as much cash out pre-IPO as possible, resulting in large negative tangible book values.

RLGY also has $4 million in accumulated deficits, resulting in a $2.1 billion Net Operating Loss (NOL) carry forward to shield future income.

There's no demonstrated record of success RGLS can sell to investors. Instead, RLGY/Apollo's pitch is that there will be lots of free cash flow generated that will be sheltered by the NOL to pay down the (huge) debt.

Valuation Ratios

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annualizing June 2012 6 mos






in IPO

Realogy Holdings (RLGY)







Glossary of IPO Analysis terms

For the six months ended June 30, 2012, revenue was up 9% to $2.184 billion from $2.01 billion for the six months ended June 30, 2011, and RGLS lost $51 million on a proforma basis.

RGLS needs "free cash flow" to justify its target $3.5 billion market capitalization. IPOdesktop knows the assumptions but, frankly, doesn't have confidence that RGLS can deliver the goods.

Avoid the RGLY IPO. A $3.5 billion market capitalization holds lots of risk when RGLY has never shown a profit, even on a proforma basis, under APO's ownership and management.

Realogy Holdings RLGY, C, 6

Post IPO shares: 140mm

Real estate brokerage & other franchisor

June 6 mos '11

June 6 mos '12

Parsippany, NJ







Revenues ($mm)













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Proforma net loss


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Pre-IPO grade-score summary
. Many IPOs in today's environment are graded C+ and scored 7
. If the pre-IPO grade is below C+ or the score is below 7,
then our analysts may have some concerns about the company's
outlook and/or its market segment
. If the pre-ipo grade is above C+ or the score is above 7,
then our analysts believe the company's overall business outlook
is more favorable.

RGLY is the world's largest franchisor of residential real estate brokerages with some of the most recognized brands in the real estate industry, the largest owner of U.S. residential real estate brokerage offices, the largest U.S. and a leading global provider of outsourced employee relocation services and a significant provider of title and settlement services.

RGLY's operating platform is supported by its portfolio of industry leading franchise brokerage brands, including Century 21®, Coldwell Banker®, ERA®, Sotheby's International Realty® and Better Homes and Gardens® Real Estate and RGLS also owns and operates the Corcoran Group® and CitiHabitats brands.

RGLY believes its multiple brands and operations allow the company to derive revenue from many different segments of the residential real estate market, in many different geographies and at varying price points.

RGLY believes that it is experiencing the beginning of a recovery in the residential real estate market.

In the first eight months of 2012, on a company-wide basis, the volume of completed homesales (i.e., average homesale price times number of homesale transactions) increased 13% compared to the first eight months of 2011.

According to NAR, existing homesale transaction volume (i.e., median homesale price times number of homesale transactions) for August 2012 increased 20% as compared to August 2011.

Furthermore, the most recent NAR forecast estimates that the volume of existing homesales will increase 14% for the full year 2012 compared to 2011 and increase a further 14% in 2013 compared to 2012.

RGLY believes the reduction in operating cost base will be largely sustainable, as these cost reductions relate primarily to the decrease in our employee headcount from 15,000 employees at January 1, 2006 to 10,400 employees at December 31, 2011 and the consolidation or closing of 358 brokerage offices.

Upon completion of this offering and related transactions, RGLY expects to reduce annualized interest expense by $330 million assuming debt balances as of June 30, 2012, which would have represented a reduction of approximately 49% of RGLY's $672 million of interest expense for the twelve months ended June 30, 2012.

The interest expense reduction comes from conversion of $1.9 billion in 11% notes, plus debt paydown from the IPO.

RGLY believes that is $2.1 billion in Net Operating Loss carry forward will shelter future profits from taxes.

RGLY to its credit does say "We may be unable to earn enough taxable income in order to fully utilize our current NOLs."

Apollo Funds, 72.6%
Paulson & Co, 14.8%

Apollo Global Mgt will also pick up $25 million in stock that will be issued on January 15, 2013, representing the non-cash portion of the Management Agreement Termination Fee. The cash portion is $15 million.

RLGY expects to net $946 million from its IPO.

Proceeds are allocated to repay debt and to pay a $15 million termination fee to Apollo, the private equity sponsor.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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