New information about a formative acquisition has revealed the magnitude of McGrath Real Estate’s appetite for growth in the lead-up to its $300 million IPO.
The group founded and led by John McGrath is understood to have paid more than $70m for the largest franchise group in the network owned by Hunters Hill-based agent Shane Smollen.
The deal negotiated early this month added another 10 agencies and effectively doubled the group’s stable of company-owned offices to 22 with 65 agents, of which 12 have been ranked within the broader group’s 25 top-performing sales agents.
McGrath is understood to have paid an upfront sum of $52.5m scrip and cash for the Smollen franchises, in Sydney’s Hunters Hill, Epping, the northern beaches and upper north shore, which is generally regarded as the network’s highest grossing catchment. The balance of the $70m will paid subject to performance hurdles over the next two years.
The information comes as the real estate magnate advances plans for an initial public offering, with analysts calculating an enterprise value of between $250m and $320m on a multiple of between eight and 10 times earnings.
McGrath executives are preparing for an investor roadshow to begin in the first week of next month, with a bookbuild to follow in the middle of month, ahead of an initial public offer during the first week of December.
The listing is set to test the strength of investors’ confidence for the residential real estate market at the end of two years of breakneck growth, and at a time when some of the nation’s largest developers have signalled the peak may have past.
Against softening clearance rates, sources close to McGrath have been keen to emphasise the group’s ability to increase earnings even when housing markets come off their peaks, as it demonstrated in the lead-up to 2013.
Other sources indicate the acquisition drive is far from over, with plans to open five new company-owned offices this financial year, with three in the Sydney metro region and another two in Queensland.
While the group was understood to be in talks with an established Melbourne agency network earlier in the year, it is understood that the plans have been changed to focus on a rollout through new franchise agencies.
This article first appeared in The Australian Business Review.