Investment Suggests an Upswing at Homestore
A private equity firm said Monday that it had agreed to invest $100 million in Homestore Inc., signaling that the once-struggling Westlake Village-based real estate firm may be turning the corner financially.
Menlo Park, Calif.-based Elevation Partners agreed to purchase convertible preferred stock of Homestore, which offers the country’s largest online listing of homes for sale through Realtor.com and other websites.
Homestore said the cash infusion could be used for growth or acquisitions. The sale is expected to close by the end of the year.
The preferred shares, if converted into common stock, would give Elevation Partners a 14% stake in Homestore. The conversion price, at $4.20 a share, is an 18% premium over Friday’s closing price.
Homestore’s stock price jumped 18% on Monday, and more good news could follow today when third-quarter results are announced, said investment banker Nishen Radia of FocalPoint Partners. The company is benefiting from the growth of house shopping on the Internet and from previous cost-cutting moves.
“The company is probably doing very well,” Radia said. “Homestore has flushed the old guard and righted itself.”
Homestore’s stock reached dizzying heights during the dot-com boom years before tanking in late 2001. At least 11 employees, including top managers, were accused of defrauding investors by inflating advertising revenue.
Homestore said in September that it would pay as much as $11 million for former Chief Executive Stuart Wolff’s legal fees. Wolff and Peter Tafeen, who was executive vice president of business development, were named in a 19-count criminal indictment returned by a federal grand jury in Los Angeles this year.
The company posted a small profit in the second quarter on increasing revenue, reversing a loss from the same period a year earlier. Homestore “is now positioned for growth,” said Fred Anderson, managing director of Elevation Partners.
He predicted that advertisers would shift more of their spending from newspapers and other traditional print media to online vehicles.
Last year, 74% of home buyers went online as part of their search for property, he said, and Homestore.com has the most comprehensive listings, with more than 90% of all homes for sale in the country.
The management team led by Mike Long has “cleaned up, turned around and stabilized the company,” said Anderson, a former chief financial officer at Apple Computer Inc.
Anderson founded Elevation Partners last year with Roger McNamee, who previously started private equity funds Silver Lake Partners and Integral Capital Partners.
Other Elevation Partners founders include singer Bono of U2; John Riccitiello, the former president of computer game company Electronic Arts Inc.; and Bret Pearlman, a former executive at private equity fund Blackstone Group.
“They are bright guys who can help Homestore think strategically,” said David Barnes, who heads the private equity group at investment bank Houlihan Lokey Howard & Zukin. “And $100 million is the perfect-sized check for them to write.”
Elevation Partners raised a $1.9-billion buyout fund in August, and the investment in Homestore will be its second. This month the firm announced it would put up $300 million to fund the formation of a partnership between independent video game developers Pandemic Studios and BioWare Corp.
Homestore shares rose 65 cents to $4.21, putting the company’s market value at $621 million.
