The IPO filing by Marcus & Millichap, Inc. last week seemed inevitable to some. The steady recovery of the commercial real estate market has been reflected in the company’s revenues. And as the largest national commercial real estate brokerage firm specializing in real estate investments, was there anything left to do but cash out?
“I would assume that it’s the next logical step,” said Yates McKenzie, managing director at Stella Capital, LLC in San Francisco and 20-year veteran of the commercial real estate development and investment business. “They’re a very large company, and they generate consistent revenue that would justify going public. As far as why they’re doing it, I’m sure the ownership wants to cash out to some extent.
“The news isn’t surprising, that’s the bottom line,” added McKenzie.
The Calabasas, Calif.-based company announced on September 26 that it filed a registration statement with the U.S. Securities and Exchange Commission relating to its proposed initial public offering of shares of its common stock. The number of shares and their price range has yet to be determined, but Citigroup Global Markets Inc. and Goldman, Sachs & Co. will serve as joint book runners. San Francisco-based JMP Group Inc. and Chicago-based William Blair & Co. will act as co-managers.
Company representatives declined to comment on the filing due to a mandatory quiet period.
It expects to raise $103.5 million, according to its preliminary prospectus and will list its common stock on the New York Stock Exchange as “MMI,” if the filing is successful. The net proceeds would go toward the purchase of real estate businesses or companies, capital expenditures and working capital to expand the company’s markets and services.
The company has come a long way after being founded in 1971 by George Marcus and William Millichap in Palo Alto. By the late 1970s, it had grown its Northern California operations and advanced into Arizona, Colorado and Texas. Expansion continued during the 1980s with new offices in Southern California and the Midwest; plans for national expansion were fully realized in 1995.
“Our revenues grew quickly through 2006 with a compound annual growth rate of 22 percent from 1995 to 2006,” the company noted in its Form S-1 Registration Statement.
The company was not spared the impact of the credit crisis in the following years. “It was a surprise, and we weren’t ready,” founder and chairman George Marcus, admitted in a rare April interview that The Registry covered. “We got hurt.”
However, the company maintained its offices and services and quickly ramped up its operations as the market recovered.
“We are killing it today,” Marcus said about the firm’s home-building business that quickly shifted focus on buying land when the economy regressed. “Normally the margins for public homebuilders are 7 [percent] to 10 percent pretax. We are looking at 25 percent.”
In 2012, Marcus & Millichap closed more than 6,100 sales and financing transactions with total volume of approximately $22 billion. It employs more than 1,000 brokers across the U.S. With a focus on the private client segment and transactions with prices under $10 million, the company generated roughly 91 percent of its revenues from real estate brokerage commissions, 6 percent from financing fees and 3 percent from other fees, including consulting and advisory services.
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