Real Matters Inc. is set to end Canada's two-year drought for information technology IPOs.
The Markham, Ont.-based mortgage-services firm filed a preliminary prospectus late Monday to raise an undisclosed sum in an initial public offering on the Toronto Stock Exchange. BMO Nesbitt Burns and Infor Financial Group, the company's past financial advisers, will lead the deal. The last Canadian software company to go public was Shopify Inc. in May, 2015.
"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 to prospective shareholders in the prospectus. Real Matters had been expected to file since its board approved the process to go public last year.
Unlike many tech firms that go public, Real Matters' path to an IPO was financed primarily by 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 Ltd. and Toronto fund manager Edgepoint Investment Group Inc.) The company, which has raised $164-million (U.S.) in private capital, said a year ago during its past fundraising round that it was valued at $650-million (Canadian).
The company has staked much of its growth on bringing technology and improved service to the U.S. mortgage-appraisal business. Real Matters assigns and manages appraisers through an online software platform that informs appraisers in its network 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, Real Matters boasts faster turnaround times and lower error rates than industry peers. The company said it "routinely" captures at least 15 per cent of the appraisal business of new lending clients in the first year, rising to 35 per cent or more after three years.
Real Matters estimates it provides one in 20 residential mortgage appraisals in the United States and has a 16-per-cent market share in Canada, where three of the big 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 United States in 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 3 per cent.
The firm forecasts 20 per cent to 25 per cent annual revenue growth over the next five years, from a base of $248.5-million posted in the fiscal year ended Sept. 30, and is aiming to increase adjusted earnings before interest, taxes, depreciation and amortization to between 25 per cent and 30 per cent of net revenue, up from 18.8 per cent.
Real Matters disclosed that it anticipates revenue 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 U.S. residential mortgage market.
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."
Mark McQueen, president and CEO of Wellington Financial and a Real Matters backer since 2010, said "Whether rates rise or fall next year, Real Matters has a substantial amount of market share to capture. Given the company's success to date, one can imagine another Shopify in the making."
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, Ont. The family asked that donations be made in his name to the Foundation for Angelman Syndrome Therapeutics.