Real Matters, led by veteran entrepreneur Jason Smith, filed lated Monday to go public on the TSX (Fred Lum/The Globe and Mail)
Real Matters Inc. is set to end Canada’s two-year drought for technology IPOs after filing late Monday to go public on the Toronto Stock Exchange.
The Markham, Ont-based mortgage services firm filed a preliminary prospectus to raise an undisclosed amount on the Toronto Stock Exchange in a deal being led by underwriters BMO Nesbitt Burns and INFOR Financial. The last Canadian tech company to go public was Shopify Inc. in May 2015. An IPO filing had been expected since the Real Matters board greenlighted the process to go public last year.
“Today, we have established an industry-leading position serving approximately 60 of the top 100 mortgage lenders in the United States, we continue to gain market share, and we believe we have just begun to tap into the potential gains possible by doing more for our clients,” Jason Smith, founder and chief executive of the 13-year-old company wrote in a letter to shareholders in the prospectus. “We also see substantial opportunities for growth in other segments where we can bring the same approach to bear, such as title and closing services. This is a testament to how we think about adding value.”
Real Matters’ path to public markets is at odds to most IPOs in the tech space as the vast majority of funds it had previously raised from private investors came from conservative Bay Street financial institutions, rather than Silicon Valley venture capital firms (its two largest shareholders, with more than 10 per cent each, are Canadian real estate advisory firm Altus Group and Toronto-based fund manager Edgepoint Investment Group Inc.). The company said a year ago its most recent private financing valued the company at $650-million.
The company has staked much of its growth on bringing technology and improved service to the U.S. mortgage appraisal business. The company assigns and manages appraisers through an online software platform that informs them how their performance statistics stack up against others. The company selectively recruits and screens independent appraisers, keeping tabs on them and paying above-average rates. As a result, the company boasts faster turnaround times and lower error rates than industry peers. The company says it “routinely” captures at least 15 per cent of the appraisal business of new lending clients within the first year, rising to “at least 35 per cent to 40 per cent by the end of the third year.”
Real Matters estimates it provides about 1 in 20 residential mortgage appraisals in the U.S. and has a 16 per cent market share in Canada, where three of the top five banks are clients. Real Matters’ stated goal is to at least triple its share of the $3.2-billion (U.S.) appraisals market in the U.S. over the next five years and to increase its 0.4 per cent share of the $13-billion American title and closing business – which it entered with last year’s purchase of Linear Title & Closing – to as much as three per cent. The firm forecasts that revenue will grow over the next five years by 20 to 25 per cent annually over its $248.5-million (U.S.) posted in the fiscal year ended last Sept 30, while it pledges to increase adjusted earnings before interest, taxes, depreciation and amortization to between 25 and 30 per cent of revenues, up from 5.2 per cent last year.
Real Matters disclosed in its regulatory filings that it anticipates revenues in its second quarter ending March 31 to be “significantly lower” than its $78.9-million posted in the first quarter as rising interest rates have dampened the overall residential mortgage market in the U.S.
But Mr. Smith pointed to Real Matters’ 95 per cent client retention rate, adding “we focus on the things we can control in order to consistently outperform our competitors, grow market share with our clients, and attract and retain franchise clients. We believe that the true value of our business will be realized by building a business that can weather the peaks and valleys and thrive over the long term. It’s working.”
The company is also dealing with a personal tragedy following the sudden death last week of 45-year-old chief operating officer Alistair James Blackburn, who joined Real Matters in 2008. The funeral of the married father of two was held on Tuesday in Oakville. The family asked that donations be made in his name to the Foundation for Angelman Syndrome Therapeutics.