SoftBank-Backed Real Estate Firm Compass Cuts IPO by Half

(Bloomberg) -- Real estate brokerage Compass Inc. downsized its U.S. initial public offering by half hours before Wednesday's planned share sale, signaling a potential decline in investor enthusiasm about technology transforming the business of buying and selling homes.

The New York-based company, led by former Goldman Sachs Group Inc. banker Robert Reffkin, said in a filing that it now plans to seek as much as $475 million by offering 25 million shares at $18 to $19 a share.

That's a sharp drop from the $936 million It had targeted in its earlier marketing of 36 million shares at $23 to $26 each, giving the company less new capital to spend on research and development, sales and marketing, and potential acquisitions.

The company would still have a market value of $7.35 billion at the top of the new range based on the outstanding shares listed in its filing. Fully diluted to include employee stock options and restricted stock units, Compass would have a valuation of as much as $9.5 billion.

The cut came after an equities rout in the past week that had affected mostly technology companies and was intensified as hedge fund Archegos Capital Management was forced into liquidation due to a margin call. Stocks rebounded Wednesday.

Compass, which raised more than $1.5 billion from SoftBank Group Corp.'s Vision Fund and other investors, touted its appeal to real estate agents, promising they could save time by relying on its software for scheduling home tours, designing marketing materials and communicating with clients. It has invested heavily in engineers to build artificial intelligence that pulls agent tools together, arguing that the technology can save agents time, help them provide better service and make them money.

Market Share

Last year, the New York-based company was involved in residential real estate transactions totaling $152 billion -- or 4% of the U.S. market, according to its IPO filing. Its revenue jumped 56% from a year earlier to $3.7 billion. More than 19,000 agents use its platform, Compass said.

It remains to be seen whether public market investors are willing to value Compass like the tech company it says it is, or if they will view it as a traditional real estate brokerage. The startup, valued in the private market at $6.4 billion in 2019, reported a $270 million net loss for last year as it invested heavily in research and development.

Compass also counts Discovery Capital Management among investors, its filings show.

The offering is being led by Goldman Sachs, Morgan Stanley and Barclays Plc. Compass plans for its shares to begin trading Thursday on the New York Stock Exchange under the symbol COMP.

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