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Rumors that Keller Williams is considering an initial public offering (IPO) have circulated since the dawn of time — or at the very least, over the past few decades. But until now, the rumors have appeared to be nothing more than speculation.
But after entering into a strategic partnership with private equity firm Stone Point Capital on Monday, industry analysts and experts believe that Keller Williams may actually be on the path to go public.
John Campbell, a managing director and real estate industry analyst at Stephens, believes that Stone Point’s investment may just be the result of Gary Keller or another owner’s desire to monetize their stake in the company. But Campbell also feels like it could be a signal that the company is seriously considering a future IPO.
“If the company is thinking about going public, they could be looking to raise primary funds by issuing additional shares and diluting, to some extent, the existing holders of the company or existing ownership, which you go about doing by bringing in outside capital, which then provides funds for the company to go do something.“ Campbell said.
That “something” could be a major acquisition or, in the case of private equity, it could come in the form of an IPO.
“Private equity needs to create that return,” Campbell said. “Oftentimes for them, it is not looking for an investment that creates a revenue stream for them, but it is about laying the seed for future returns where you’re going to invest in the business and then look for a way to monetize it over a five- to seven-year time frame. But it may be quicker than that.”
What’s the timeline?
According to Campbell, private equity firms typically get their returns one of two ways. Either they invest in the business, improve it and sell it when the market comes back, or they do an IPO.
Victor Lund, managing director of the WAV Group, agrees with the hypothesis that Keller Williams may be using this investment from Stone Point to diversify the company’s ownership.
“Stone Point’s job would be, I imagine, to support Keller Williams at their goal of going public, if that still makes sense for the business,” Lund said.
Eventually, he believes that if the balance of the liquidity is owned by Stone Point, the private equity firm will look to exercise that through a public offering.
Steve Murray agrees that an IPO could be in Keller Williams’ future due to the partnership with Stone Point, but he doesn’t think it will happen anytime soon.
“It’s not imminent at all,” said Murray, the co-founder of RealTrends Consulting. “It could happen in the future, though, if Stone Point wants to sell it off once it has cleaned it up and boosted its earnings. But there is definitely work to do before they get to the point of an IPO.”
Past examples
After several real estate companies — including Compass, Offerpad, Opendoor, and Redfin — went public in the late 2010s and early 2020s, the well of real estate IPOs seemingly ran dry in 2022.
Part of this was tied to the macroeconomic environment, which was largely characterized by rapid inflation, but mortgage rates also played a large role. As the Federal Reserve quickly ramped up interest rates in an attempt to curb inflation, the housing market — which had been red hot across the country through much of the COVID-19 pandemic — slammed on the brakes. The number of home sales quickly cooled and so did brokerage valuations.
Compass, for instance, premiered on the New York Stock Exchange trading at $19 per share with an $8 billion valuation. In May 2022, the company’s stock was trading at $5 per share with a market capitalization of roughly $2 billion. Compass’ stock has since rebounded slightly and is now trading at roughly $8.50 per share with a market capitalization of $4.87 billion.
Economists are again predicting another slow year for home sales as the market battles uncertain economic conditions. Even so, analysts believe this may be a good time for real estate firms that may be toying with the idea of an IPO to start considering the option more seriously.
“A lot of long-term investors are bullish on the housing market and on housing stocks,” Campbell said. “For them, it is more of a ‘when’ than an ‘if’ the housing market will recover and you’ll get a return on your investment. So, if you are in for a multiyear ride, this is kind of when you’d want to buy those housing stocks.”
Benefits for agents
Although going public in the near future may not result in the best valuation for a brokerage company like Keller Williams due to the slower housing market, it would make it an enticing investment for many.
“When you are in a better market, you are going to have higher earnings and higher estimates in your out years as you build out your S-1,” Campbell said. “But owning a stock, putting new money to work in a period where you feel like you’re at trough earnings and it is going to do nothing but accelerate in the years ahead, that could definitely be viewed as a good window.”
In addition to providing Stone Point a way to make a return on its investment, an IPO would also allow Keller Williams to offer company equity to its agents.
“If you have two of your largest competitors, eXp and Real — which have been a bit of a thorn in your side — able to offer equity because they are publicly traded, it might make you think,” Campbell said.
While research at Stephens is mixed on the impact of offering equity to agents, Campbell also said there is a cohort for which it is the deciding factor on whether they want to hang their license at a specific brokerage.
“From the standpoint of Keller Williams, at least one portion of its agents might want to have the ability to hold shares in the company, giving it the same market mechanism as its competitors,” Campbell said.
Although an IPO may be in the cards for Keller Williams, for now the company will continue to be owned by co-founder and executive chairman Gary Keller, along with Stone Point Capital and other members of the company’s leadership team.
