Real estate franchise operator Re/Max Holdings has filed for an initial public offering, and in light of similar deals in the sector, a Re/Max IPO should get a warm reception from investors.
Re/Max is the No. 1 operator in both the U.S. and Canada in terms of total residential transactions, and has held the top spot every year since 1999.
So the company has absolutely earned its motto, “Nobody sells more real estate than Re/Max.”
Of course, selling the most real estate wasn’t enough to spare Re/Max during the decline of real estate from 2005 to 2011, which saw existing home sales plunge by 40% while median prices fell 24%. During this time, Re/Max underwent a tough restructuring that included slashing its agent count from 120,000 in 2006 to its current levels around 92,000.
However, the real estate market has been gaining momentum lately. The National Association of Realtors reports that existing home sales are forecast to grow by 8.3% to 5 million units in 2013, and median home prices are expected to grow by about 10.6%.
As one would imagine, Re/Max has benefited. During the first half of 2013, revenues climbed from $70.2 million to $78.3 million, while operating income increased from $49.6 million to $55.5 million. Most of that push came from the U.S. market, which amounts for roughly three-quarters of Re/Max’s revenues; another 17% comes from Canada.
Expect this strength to continue. The real estate market has some big drivers, including historically low interest rates, an improving economy and growth in family formation. But perhaps the most important factor is that the country has seen meager home construction since 2006, so even small increases in demand can mean hefty price increases for homes.
Thus, it should be no surprise that other real estate operators have done well in the IPO market. Realogy (RLGY) — which owns brands like Better Homes and Gardens, CENTURY 21, Coldwell Banker and ERA — has posted a 48% gain since its offering in October 2012. Then there are online real estate info players like Zillow (Z), up a sizzling 335% since coming public in summer 2011, and Trulia (TRLA), which has returned 170% since its September 2012 IPO.
Given all this action, the Re/Max IPO should experience smooth sailing.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.