Next step Victoria for John McGrath

McGrath Estate Agents will expand into Victoria “in the near term”, with millions of dollars from its public float in place to help fund the move.

In the prospectus that McGrath lodged ahead of its upcoming float, the company said it was in “well-advanced discussions with potential franchisees to enter the Victorian market in the near term”.

McGrath said it plans to open 15 franchise offices and four company-owned offices this financial year, including between four and six in inner-city Melbourne.

“In deciding to enter the Victorian market, McGrath has taken into account the particular dynamics of the market, most notably the prevalence of boutique independent brands,” according to the prospectus.

“McGrath has elected to implement its market entry via franchise offices as it allows McGrath to use experienced operators in particular areas with established reputations in those areas at the agent level.

“The offices will be opened in areas with similar characteristics to McGrath’s core locations in Sydney and Brisbane, and the proposed Victorian franchisees are all established and successful operators in their respective areas.”

McGrath currently has 617 agents working out of 75 offices. Of those offices, 53 are owned by the franchise and 22 by the company – including the 10 Smollen Group offices recently acquired in what the prospectus said was a $52.5 million deal.

The company operates in three states and territories, with a market share of 7.2 per cent in NSW, 5.4 per cent in the ACT and 1.3 per cent in Queensland, which equates to a national market share of 3.2 per cent.

Chief executive John McGrath said that once the company floats it will have a strong opportunity to expand given that it only covers 40 per cent of addressable markets.

“I believe our model provides us with advantages over other real estate groups as it allows us to partner with strong local franchisees and roll out our brand into new regions as well as to selectively open new company-owned offices,” he said.

“In addition to our ongoing organic growth, the offer gives us the opportunity to consider selectively acquiring businesses that are compatible with McGrath.”

According to the prospectus, McGrath is also considering expanding into other states, as well as into New Zealand over the longer term.

Meanwhile, the prospectus also revealed that the company has forecast continuing growth in its financial position.

Pro-forma revenue is expected to rise from $122.3 million in 2014-15 to $141 million in 2015-16, which would be an increase of 15.3 per cent. Net profit is also expected to increase by 15.3 per cent, from $18.3 million to $21.1 million.

McGrath expects to raise $129.6 million from the float, with $15.9 million budgeted to repay all current and non-current debt and $7.9 million to be used to provide working capital.

Of the remainder, $64.2 million will go to existing shareholders, $31.5 million will be used to pay the initial cash consideration of the Smollen acquisition and $10.1 million will be allocated to pay the costs of the offer and acquisition.

[Related: McGrath grows sales 76% in two years]

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