By Aron Adamski, BSc Economics @LSE
OVERVIEW OF THE DEAL:
- Acquirer: Adevinta ASA
- Target: eBay Classifieds Group
- Industry: Internet Software and Services
- Estimated value: $9.2B
- Financing: Mixed
- Announcement Date: 21/07/2020
- Acquirer Advisors: Citigroup Global Markets
- Target Advisors: Goldman Sachs, LionTree Advisors
Norway’s Adevinta ASA has won an auction to buy eBay’s classified ads unit. Ebay will keep a minority stake in its classifieds unit as part of the deal.
Adevinta will pay $2.5B in cash and issue approximately 540M shares of its common stock, making eBay the largest shareholder in online classifieds company Adevinta with a 44% equity stake and 33.3% of the voting rights. Schibsted ASA, the majority owner of Adevinta, will reduce its stake from 59% to about 33%.
Prosus, a global investment group, initially had the strongest chance of buying the business, as it submitted the highest bid. However, eBay was interested in keeping a stake in its classifieds business, which reduced their chances of winning. Other rival bidders included The Blackstone Group, Permira Advisers and Hellman & Friedman.
The deal is subject to regulatory approvals and customary closing conditions and is expected to close by Q1 2021.
COMPANY DETAILS (Adveinta ASA):
Adevinta ASA operates as an online classifieds company worldwide. Classifieds means arranged in classes or categories. It owns and operates 36 online classified marketplaces in generalist, real estate, cars, jobs, and other categories across a range of websites and mobile applications in 16 countries.
- Founded in: 2018
- Headquartered in: Oslo, Norway
- CEO: Rolv Erik Ryssdal
- Number of Employees: 2,800
- Market Cap: $10.87B
- EV: $11.02B
- LTM Revenue: $756.62M
- LTM EBITDA: $169.82M
- EV/ LTM Revenue: 14.56x
- EV/ LTM EBITDA: 64.89x
Some of its most popular brands include OLX Brazil, PayCar, Locasun, Argus Group and Lebocoin.
OLX Brazil is the market leader in horizontal classifieds (offering a range of different goods) in Brazil, as well as the leader within the car vertical and the number two player within the real estate vertical.
PayCar is a startup specializing in peer-to-peer payment for second-hand vehicle purchases.
Locasun is the holiday rental and travel specialist in B2C online reservations of vacation properties across Europe.
Argus Group is one of France’s leading players in digital marketing services to the automotive industry in France. It offers a range of products aimed at professionals in the automotive industry, including manufacturers, distributors, dealers, and auctioneers.
Leboncoin is France’s go-to destination for buying, selling and matching top talents with companies. It has 28.6M monthly active users.
COMPANY DETAILS (eBay Inc.):
eBay Inc. operates the Marketplace platforms that connect buyers and sellers worldwide. In 2019, the company launched a review of its operations, including StubHub and classifieds businesses.
- Founded in: 1995
- Headquartered in: San Jose, California, United States
- CEO: Jamie Iannone
- Number of Employees: 13,300
- Market Cap: $40.04B
- EV: $48.39B
- LTM Revenue: $10.91B
- LTM EBITDA: $3.12B
- EV/ LTM Revenue: 4.44x
- EV/ LTM EBITDA: 15.51x
The company’s technologies and services are designed to give buyers choice and to enable sellers worldwide to organize and offer their inventory for sale, virtually anytime and anywhere. Its marketplace platforms include its online marketplace and localized counterparts, including off-platform businesses in Korea, Japan and Turkey and the eBay suite of mobile apps. In February, eBay completed the sale of ticketing unit StubHub to a Swiss firm for $4.05B.
The company’s classifieds platforms, that they are selling, include a collection of brands, such as mobile.de, Kijiji, Gumtree, Marktplaats, eBay Kleinanzeigen and others.
STRATEGIC RATIONALE:
BACK TO THE CORE
The sale is part of a long-term strategy by eBay to focus on its core marketplace, which has seen a rise in demand due to the coronavirus crisis as consumers move online. eBay said it reached a total of 174M global buyers in the Q1 2020, up 2% from the year-ago quarter.
“Selling off classified business will make eBay a pure-play e-commerce company allowing it to better compete with online giants like Amazon” ~ R.J. Hottovy, Morningstar
SYNERGIES
Adevinta said the combined business will have revenue of about $1.8B and EBITDA of $600M. It expects annual synergies of $150M to $185M within 3 years. Two-thirds of that will be due to reduction in costs.
TAX SAVINGS
The company will also get a tax benefit worth approximately $2.35B by keeping a holding in the business.
RISKS AND UNCERTAINTIES
The move by eBay to sell off the classified business comes after intense pressure from activist investors Starboard Value LP and Elliott Management Corporation that placed eBay under a strategic review in 2019 and ordered a restructuring. However, eBay still lags behind competitors, with revenue remaining relatively flat on a YoY basis in 2019, increasing 0.5%, compared to an 8.3% annual increase the year prior. It remains to be seen how a classified business sell-off will help eBay compete with companies like Amazon.
OUR VIEW
The horizontal integration between the two businesses looks promising due to their complementarity. The combined group will run specialised online marketplaces and will be a number one player in the main European economies of Germany, France, Spain and Italy. At the same time, eBay will be able to focus on their marketplace business, strengthening their market position against bigger rivals such as Amazon.
