Re/Max Gains 20% after IPO

Shares of Re/Max Holdings (RMAX) have surged out of the gate as investors scoop up shares following the real-estate brokers IPO.

Reuters

Shares of Re/Max priced at $22, above the range of $19-$21 it had been seeking. The Associated Press has the details:

Re/Max Holdings Inc. has raised $220 million in an initial public offering of its common stock.

Re/Max is giving the underwriters a 30-day option to buy up to an additional 1.5 million shares to cover any excess demand.

The company anticipates about $194.2 million in net proceeds, after underwriting discounts and commissions and estimated offering expenses. Re/Max plans to use the proceeds to reacquire regional Re/Max franchise rights in some markets, redeem preferred membership interests and buy back ownership stakes from existing shareholders.

 Re/Max shares have jumped 21% to $26.67 at 10:32 a.m. Investors might want to reconsider jumping in, however. Here’s what I wrote about IPOs back in 2011 and it still stands today.

The IPO game is notoriously dicey for retail investors. That’s because most of the shares sold at the low offering price go to institutions; only about 20% go to individuals, according to Jay Ritter, a finance professor at the University of Florida.

That means most people must settle for buying new shares during their first few days of trading—from the bigger investors who are selling. This scenario proved disastrous for investors who bought hot Internet companies near the end of the dot-com boom, just before they crashed.

Most IPOs, in fact, fail to pan out for small investors. Excluding the first day of trading, the average IPO underperforms similarly sized companies by 3.4 percentage points a year during its first five years of trading, according to Prof. Ritter’s data.

The IPO has a mixed impact on other real-estate related companies. Realogy (RLGY) has fallen 0.2% to $43.62, while Vector Group (VGR), which has both tobacco and real-estate brokerage businesses, has dropped 0.5% to $15.99. Zillow (Z) has jumped 4.1% to $90.44.