La Rosa Holdings Seeks $7 Million Mini-IPO (LRHC)

A Quick Take On La Rosa Holdings Corp.

La Rosa Holdings Corp. (LRHC) has filed to lift $7 million in an IPO of its frequent stock, based on an S-1/A registration statement.

The agency supplies actual property brokerage and associated companies within the Southeastern United States.

Given the extremely fragmented nature of the business, low barrier to entry, excessive rate of interest setting, low affordability, skinny firm capitalization, dropping income and unfavorable money stream era, I’ll go on the IPO.

La Rosa Overview

Celebration, Florida-based La Rosa Holdings Corp. was based to develop company-owned and franchised actual property brokerage operations in Florida and different U.S. states and Puerto Rico.

Management is headed by founder, president, Chairman and CEO Joseph La Rosa, who has been with the agency since its inception in 2004 and was beforehand a police officer in Orlando, Florida and has expertise in business and residential actual property improvement.

The firm’s major choices embrace the next:

• Real property brokerage

• Franchising

• Education

• Property administration.

As of December 31, 2022, La Rosa has booked truthful market worth funding of $3.3 million from traders together with Joseph La Rosa and others.

La Rosa – Client Acquisition

The agency operates 5 corporate-owned actual property brokerage workplaces in Florida, and presently has 24 fee-paying franchisee workplaces and 4 affiliated workplaces in 5 states and Puerto Rico.

The firm attracts brokers partially as a result of its greater fee cut up mannequin, a technique different brokerage companies have additionally pursued.

Sales and Marketing bills as a proportion of whole income have risen as revenues have decreased, because the figures beneath point out:

Click to enlarge

(Source – SEC.)

The Sales and Marketing effectivity a number of, outlined as what number of {dollars} of extra new income are generated by every greenback of Sales and Marketing expense, was unfavorable (6.2x) in the latest reporting interval. (Source – SEC.)

La Rosa’s Market & Competition

According to a 2022 market research report by ResearchAndMarkets, the worldwide market for actual property gross sales and brokerage companies was an estimated $1.4 trillion in 2023 and is forecast to achieve $1.8 trillion by 2027.

This represents a possible development of 6.5% from 2023 to 2027.

The primary drivers for this anticipated development are continued sturdy demand for actual property property as a hedge in opposition to inflation, a retailer of worth and for monetary diversification functions.

Major aggressive or different business contributors embrace the next:

• RE/MAX Holdings

• Keller Williams Realty

• HomeSmart

• Realogy Holdings

• Realtor.com

• Fathom Holdings

• Redfin

• Zillow

• SimpleShowing

• Houwzer

• Real Estate Exchange

• Homie Technology

• Cottage Street Realty

• Trelora

• Others.

La Rosa Holdings Corp. Financial Performance

The firm’s current monetary outcomes may be summarized as follows:

• Declining topline income

• Dropping gross revenue and gross margin

• A swing to working loss

• Operating money use in 2022.

Below are related monetary outcomes derived from the agency’s registration assertion:

Click to enlarge

(Source – SEC.)

As of December 31, 2022, La Rosa had $118,558 in money and $6.8 million in whole liabilities.

Free money stream throughout the twelve months ending December 31, 2022, was unfavorable ($1.2 million).

La Rosa Holdings Corp. IPO Details

La Rosa intends to lift $7 million in gross proceeds from an IPO of its frequent stock, providing 1.4 million shares at a proposed worth of $5.00 per share.

No current shareholders have indicated an curiosity in buying shares on the IPO worth.

The firm has additionally registered on the market as much as roughly 2.363 million shares held by promoting shareholders. If bought by shareholders, these extra shares bought on the market might exert downward worth strain on the stock, all different issues being equal.

Assuming a profitable IPO, the corporate’s enterprise worth at IPO would approximate $56.6 million, excluding the results of underwriter over-allotment choices.

The float to excellent shares ratio (excluding underwriter over-allotments) can be roughly 11.61%. A determine below 10% is mostly thought-about a ‘low float’ stock which may be topic to vital worth volatility.

Management says it should use the online proceeds from the IPO as follows:

We intend to make use of the online proceeds we obtain from this Offering for common company functions, which can embrace financing our development by buying extra brokers at a sooner tempo (15%), reimbursement of sure promissory notes issued by the Company (excluding these notes issued to Mr. Joseph La Rosa) (11%), creating new companies (10%), acquisitions of controlling curiosity in a lot of our franchisees (12%), the acquisition of different unbiased actual property brokerages, title insurance coverage companies, mortgage brokerages and different complementary companies (15%), common working bills (22%) and the acquisition and acquisition of proprietary expertise (15%).

(Source – SEC.)

Management’s presentation of the corporate roadshow shouldn’t be accessible.

Regarding excellent authorized proceedings, administration says the agency shouldn’t be topic to any authorized proceedings that may have a fabric antagonistic impact on the enterprise.

The sole listed bookrunner of the IPO is Spartan Capital Securities.

Valuation Metrics For La Rosa

Below is a desk of related capitalization and valuation figures for the corporate:

Click to enlarge

(Source – SEC.)

Commentary About La Rosa’s IPO

La Rosa Holdings Corp. is searching for U.S. public capital market funding to pay down debt, purchase sure franchise operations and for different company enlargement and dealing capital necessities.

The agency’s financials have produced dropping topline income, declining gross revenue and gross margin, a swing to working loss and working money use in 2022.

Free money stream for the twelve months ending December 31, 2022, was unfavorable ($1.2 million).

Sales and Marketing bills as a proportion of whole income have risen as income has declined; its Sales and Marketing effectivity a number of was unfavorable (6.2x) in 2022.

The agency presently plans to pay no dividends and retain any future earnings for reinvestment again into the corporate’s development and dealing capital necessities.

La Rosa has not spent on capital expenditures in the latest calendar 12 months.

The market alternative for offering actual property brokerage and associated companies is giant and anticipated to develop at a average fee of development within the coming years.

However, the business is very fragmented and intensely aggressive and the agency faces entrenched opponents with excessive title recognition and deep pockets.

Spartan Capital Securities is the only real underwriter, and IPOs led by the agency during the last 12-month interval have generated a median return of 31.6% since their IPO. This is a top-tier efficiency for all main underwriters throughout the interval.

Risks to the corporate’s outlook as a public firm embrace the cyclicality of actual property markets, particularly in current intervals with sharply rising rates of interest, and a discount in credit score availability because of the current banking disaster, amongst different dangers.

As for valuation expectations, administration is asking traders to pay an Enterprise Value/Revenue a number of of roughly 2.16x on declining income and deteriorating internet outcomes.

Given the extremely fragmented nature of the business, low barrier to entry, excessive rate of interest setting, low affordability, skinny firm capitalization, dropping income and unfavorable money stream era, I’ll go on the La Rosa Holdings Corp. IPO.

Expected IPO Pricing Date: To be introduced.