McGrath estate agency formally announces intention to list on ASX
McGrath Holding Company Limited today lodged a prospectus with the Australian Securities and Investment Commission in relation to an initial public offering and listing on the Australian Securities Exchange.
According to the release, McGrath is inviting investors to subscribe for 61.7 million Shares at an offer Price of $2.10 per Share for a total Offer size of $129.6 million.
Following completion of the offer the company will be renamed McGrath Limited and existing shareholders will own approximately 46.3% of McGrath, of which John McGrath will remain McGrath’s largest shareholder with a holding of 27% of the group, under escrow until the 2017 financial year, worth $76 million at the issue price. He currently has 58% of the group.
The documentation includes details on the binding share purchase agreement and scrip consideration deed (SPA) to acquire the Smollen Group, McGrath’s largest Franchisee.
The Smollen Group is a significant real estate group that comprises 10 offices across Sydney’s North Shore, North West and Northern Beaches contracting approximately 65 sales and 19 property management staff.
McGrath is familiar with the Smollen Group’s operations given their long franchise relationship of over 8 years.
Shane Smollen, the 75% current owner of the Smollen Group, was also previously McGrath’s Sales Director.
The acquisition has been structured such that McGrath will acquire 100% of the Smollen Group for: — an initial purchase price of approximately $52.5 million, payable partly in cash ($31.5 million) and partly in Shares ($21 million) to be issued at the Offer Price; and — deferred consideration of up to $17.5 million subject to certain performance hurdles and other conditions, payable equally in cash and shares effected by the conversion of convertible redeemable preference shares (CRPS).
The financial notes reference the elimination of the franchise fee receivable from the Smollen Group at $1.8 million.
The prospectus advised McGrath generates income through its five business units.
1) Company owned sales (71% of FY2016 pro forma segment EBITDA1 ).
2) Company owned property management (11% of FY2016 pro forma segment EBITDA1 ).
3) Franchise services (14% of FY2016 pro forma segment EBITDA1)
4) Mortgage broking (2% of FY2016 pro forma segment EBITDA1 ).
5) Training and other services (1% of FY2016 pro forma segment EBITDA1 ).
In the year to 31 March 2015, McGrath’s market share was estimated to be approximately 7.2% in NSW, 5.4% in the ACT, 1.3% in Queensland (by McGrath management) and 3.2% nationally by total value of properties sold.
"Given this current market position relative to its operational scale, McGrath believes there are multiple avenues to grow its business, operating footprint and earnings, through organic growth and select acquisitions."
The Company Owned Offices’ property management business directly manages approximately 7,396 properties and its home loan business, Oxygen Home Loans, was ranked number nine in the 2015 ranking of Australia’s top mortgage brokerages published by industry magazine, The Adviser.
McGrath has plans in place to open 15 Franchise Offices and four Company Owned Offices in FY2016, including McGrath’s first Franchise Offices in Victoria. McGrath currently has approximately 53 franchise agreements in place with 31 Franchisees. McGrath plans to open 4 new offices in FY2016 in Newtown and Maroubra in Sydney and Robina and Paradise Point in Queensland.
McGrath’s franchise network has grown strongly since the first franchise was granted in 2006. Including the impact of the acquisition, property sales grew by approximately 270% between FY2009 and FY2015 and Agent numbers increased by approximately 9 times over the same period. No McGrath Franchisee has elected not to renew its franchise agreement and move to another franchise network.
The existing shareholders, including John McGrath, will in aggregate retain a high level of ownership following the offer, of 46.3%.
