SoftBank-backed US real estate brokerage in Japan cuts IPO

Compass, backed by SoftBank, has only raised about half of the total it initially expected from its IPO, a sign that investors have become cautious about the sales-disrupting tech-equipped brokerage’s ambitions. real estate.

Compass valued its shares at $ 18 each Wednesday night, according to the company, raising $ 450 million.

Previously, the company had cut the number of shares it planned to sell by almost a third and lowered the top of its price range by more than a quarter.

At the final offer price, Compass will have a market cap of $ 7 billion, which is still an increase from its last private valuation of $ 6.5 billion two years ago.

Compass is trying to differentiate itself from other real estate brokers with a digital marketing and analytics platform for its agents, which has helped catapult the company’s valuation into a range typically reserved for large tech start-ups. The company had more than 19,000 agents on its platform at the end of last year and claims 4% of the US home buying market.

Unlike other real estate tech companies, such as Open door, which charges a service fee for buying and flipping homes, Compass has a more traditional business model, taking a commission cut when an agent sells a home.

Compass’s revenue rose 56% to $ 3.7 billion last year, while its net losses narrowed to $ 270 million, from $ 388 million in 2019.

Company’s public debut comes amid a boom in the US real estate market as Americans business of apartments in town for suburban homes as a result of the pandemic. Average home prices rose at their fastest pace since 2006 in January, according to the S&P CoreLogic Case-Shiller Indexes, a measure of home prices in the United States.

With $ 1.5 billion in venture capital funds raised prior to its IPO, Compass was able to rapidly grow its agent base, in part by acquiring several independent brokerage firms.

Other brokers accused the company of using its cash to poaching agents with extravagant compensation packages. Some of those who joined Compass later complained that these early compensation programs created a misleading appearance about what they would earn.

Compass said in a prospectus that its retention rate among “senior agents” – team leaders or independent agents who together made up about half of its total contractor base – exceeded 90% in the past three years. . But analysts have warned that competitors with better deals could attract them.

Real estate agents, they’re independent contractors, they’re entrepreneurs, ”said Mike DelPrete, Independent Real Estate Technology Advisor. “As Compass becomes less lucrative for agents, there is a big retention issue.”

Robert Reffkin, chief executive of Compass, will retain nearly half of the company’s voting rights after the offer through his ownership of Class C shares, which each carry 20 votes. With Reffkin’s compensation vested over time, he is on the verge of acquiring majority control of the company.

SoftBank Owned by Vision Fund 36.7% of the company’s Class A shares, giving it a stake of $ 2.3 billion at the offering price.

Goldman Sachs, Morgan Stanley and Barclays led the Compass public offering.

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