Apollo to acquire US home broker Realogy for $6.4b
Apollo Management agreed to buy Realogy, the owner of the Century 21 and Coldwell Banker real-estate brokers, for about $6.4 billion in a sign the US housing slump may have touched bottom.
The New York-based buyout firm run by Leon Black will pay $30 per share, 18% more than the December 15 closing price, for Realogy, the biggest US residential broker, which only became publicly traded on Aug. 1. Including debt, Parsippany, New Jersey-based Realogy is valued at $9 billion, Apollo said.
“They’re betting that the market is going to come back,” said Karl Case, a real estate researcher at Wellesley College in Wellesley, Massachusetts. “It’s an interesting time to be buying a brokerage.”
Sales of previously owned US homes will increase at an annual rate of 6.29 million in the first quarter of 2007, snapping five straight quarterly declines, the National Association of Realtors forecast last week. Realogy’s brokers, which also include ERA, NRT and Sotheby’s International Realty, handle one in every four home sales in the US that involve an intermediary, according to the company’s website.
Realogy chairman and chief executive officer Henry Silverman, 66, said the company’s purchase price “takes into account the substantial pressures and uncertainties facing the residential real estate markets that may well continue for some time.”
Realogy was one of four companies created this year in the breakup of Cendant, the travel, leisure and real-estate business founded by Silverman in 1997. Realogy employs about 15,000 people and has 3,00,000 affiliated brokers.
Mr Silverman will continue to serve as chairman and CEO until his employment agreement expires December 31, 2007. He will be succeeded by vice-chairman and president Richard Smith. Mr Silverman owns 2.9 million shares of Realogy and will be paid for those and his in-the-money options as other shareholders, Realogy said. He will not participate in the buyout with Apollo.
Mr Black, 55, was the former co-head of corporate finance at now-defunct Drexel Burnham Lambert, the top underwriter of high-yield corporate debt before collapsing in 1990.
Before today, Realogy’s stock price had gained 28% from a September 8 low of $19.97 in New York Stock Exchange composite trading. The shares closed Friday at $25.50.
Robert Toll, chief executive officer of Toll Brothers, the largest US luxury home builder, said in a December 5 conference call that some markets “seem to be dancing on the bottom or slightly above.”
The median price for a previously owned US home probably will be $2,22,600 this year, up 1.4% from 2005, David Lereah, chief economist of the National Association on Realtors, said last week. The median price for a new house will fall 0.5% to $2,39,700, according to Lereah.
Apollo’s acquisition of Realogy is the second-largest leveraged buyout of a real estate company this year, after the purchase of Equity Office Properties Trust by Blackstone Group LP for $20 billion. That transaction, announced in November, is the largest takeover of a real estate investment trust. About $70 billion of buyouts of U.S. real estate companies have been announced this year, compared with just $8.7 billion in 2005, according to data compiled by Bloomberg.
This year has been the most active ever for private equity buyouts. Buyout firms have raised record sums and announced more than $700 billion of acquisitions worldwide this year, more than double last year’s total, Bloomberg data show.
The Realogy purchase must be approved by the holders of a majority of the company’s shares and receive antitrust and insurance approvals. Realogy and Apollo plan to complete the acquisition by the middle of next year.
The price is about 12 times the consensus Wall Street forecast for 2007 earnings before interest, tax, depreciation and amortization, Realogy said.
More Bidders?
3i Group Plc, Europe’s biggest publicly traded buyout firm, agreed Dec. 12 to pay about 941 million pounds ($1.8 billion) for Countrywide Plc, the U.K.’s largest real estate broker. That’s less than nine times the expected Ebitda for next year, according to Bridgewell Securities Ltd. analyst Katrina Preston.
Under the terms of the agreement with Apollo, Realogy may solicit proposals from other potential buyers until Feb. 14. Any proposals would be considered by a special committee and independent advisers, Realogy said.
In addition to being a broker, Realogy offers relocation and title services. Before the spinoff, Realogy operated as part of the Cendant Real Estate Services Division. It became a part of the Standard & Poor’s 500 Index in August.
Cendant in August completed the $4.3 billion sale of its Travelport unit, the parent of online travel site Orbitz.com, to buyout firm Blackstone Group. In July, it spun off Realogy and Wyndham Worldwide Corp., a hotel operator. Cendant changed its name to Avis Budget Group Inc.
New York-based Cendant struggled amid investigations into its accounting and the fraud trials of two former executives. Following the breakup, Avis Budget Group has focused on its car- rental business.
Realogy isn’t Apollo’s first acquisition of a former Cendant business. In July, the firm agreed to buy a Cendant unit that directly markets insurance, financial services and membership clubs for $1.83 billion.
Almost 10 years ago, Cendant and Apollo formed NRT Inc., a joint venture that at the time was the largest residential real estate brokerage. In 2002, Cendant bought NRT for $230 million and the assumption of $300 million in debt.
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