Realogy, the world's largest real estate franchisor, made a very quiet announcement Sunday, that they were being taken private for approx. $9 billion, an 18% premium for shareholders to the then-current trading value.  They are being bought by private equity firm Apollo.  It almost make it under the ActiveRain radar but for blogs by Lawrence Yerkes, Michell Hall and Ken Stampe that seemed to get very few collective comments.  Amazing, given their being the master franchisor for some of the biggest brands in the industry, including Coldwell Banker and Coldwell Banker Commercial, Century 21, ERA, Sotheby's and others.

I've often wondered why they never made a push to combine their differently named competitor companies, but that's a much longer post.  Regardless, as the parent company they were a pain in the butt to deal with and had none-to-friendly a reputation from most of the rest of the industry (from what I've personally heard and experienced).  The only positive comment I saw on this deal so far (except from Realogy and Apollo) was from a principal broker at Coldwell Banker Commercial who seemed excited that the commercial side of Realogy's business will be given more attention now.

What jumps out at me is that the company, which has only about $1.6 billion in debt today plus other liabilities of $750 million, is being bought with about $7 billion in debt (get out the corporate credit card for this one!) and only $2 billion in equity.  JP Morgan, Credit Suisse and others are in on the debt side.  That's an awfully high level of debt to me, especially in a weakened (note, not weak) real estate market, for a player that's stuck to the most old-school of business models in their franchises (and had Re/Max, Keller Williams and others take massive market share percentage away in the past decade or two).  That's not to say they still aren't profitable, just that they seem to be riding this one all the way into the ground one way or another.  According to their SEC filings, Realogy's revenues year to date are down 10% from the same time last year (through the third quarter 10-Q) and profits are down a cool 30%+...not a good trend to be buying into - I sense a further spin-off, if not the re-IPO, maybe of the individual brands (or even that unfathomable combining of brands)?  Immediately following the announcement S&P dropped Realogy's debt rating to "junk" grade (BB+, from a barely investment grade BBB before the announcement).

It's a great deal for the shareholders, who, again, get an 18% pop on their share price (and almost 30% on the average price since the August 1^st start of trading of that firm spun off of Cendant).  I just don't know where the upside is.  Private equity firms like Apollo are certainly moving and shaking the real estate world, though.  The far bigger buy-out of late was Blackstone's $36 billion (yes, that's four times this deal) buyout of Sam Zell's Equity Office Properties.  That one was in the past two weeks as well, in a year where private equity firms, led by Blackstone, bought out quite a lot of publicly traded REITs. 

On a much smaller note, Italian investor IFIL acquired a 2/3 stake in one of the bigger commercial real estate companies, Cushman & Wakefield, on Tuesday, for a more palatable $563 million.

Where is all this money coming from, and is there a bubble here somehow?  I just wonder how long this deal can stay private with that high a debt load before they have to go back to the IPO market to bail them out, which is not an unheard of move for a private equity firm on a deal like this.  Oh by the way, Realogy has the right to shop around for a better deal until Valentines Day, so if you're interested in buying a dinosaur for something over $9 billion, throw your hat in the ring (note: Apollo gets a $100 million break up fee if Realogy accepts a different deal, though). 

I still wonder what this will end up resulting in for the well-known Realogy brands.  I'm quite certain it won't be business as usual, despite the letter they sent to their franchisees (see Michell's blog post link above).