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Tuesday, December 10, 2013

iBuy and DealGuru

Edit : I made a mistake in Groupon multiple. Groupon trades at 2.5 times revenue not total sales transacted. Using sales transaction, Groupon trades at 1.4 times at current $12 shareprice of 8B market cap. So Dealguru sale at 50/38 = 1.3 times or so is quite fairly valued. It also means there is no obvious valuation upside for Dealguru holding on the ibuy shares.

This post follows from my post about Patrick Grove's Empire. Earlier this week, got news that iBuy ( a new vehicle which will list on ASX) has entered to buy DealGuru and 2 other deal sites in the region. The deal will form an instant A$70M revenue business and the CEO of the entity will be Patrick Linden from Dealguru.

This is again a good move from Patrick Grove of Catcha Group. He buys these companies via 1/3 cash and 2/3 share swap at 1 times past 12 months revenue and he will unlock value in their respective markets and then the ASX market will accord them a better multiple which will then result in win win for not just Patrick but for the guys who sold the business to him. Take note that Groupon is now valued at 2.5 times revenue past 12 months. So there is an easy 2.5 times capital gain here.

Whats more, because he intends to raise about 33M from IPO investors and probably some bond investors, this means he is using OPM for the combined entity. That is a cool Series B/C done via IPO route again! Really love the guy.

How about the guys who sold and what does it mean for the deal industry or ecommerce industry?

Well, i have only met Patrick Linden a long time ago before he started Dealguru. Came across as intelligent, nice and sharp person. Insead grad i think....

Anyway, he and his partner each own about 18% of the company, so they get S$2.25M cash first and end up owning about 4% of combined entity. I think it is a smart arrangement all ways. That way , they are committed to growing the business and if it grows 2.5 times, then Patrick and partner are looking at real money. For example, at present value, their stake is each worth about $7M give or that. But if share price increases 2.5 fold... then it is a deal worth about S$14M.

But they should take note that they need to replicate what iProperty did and they are up against much stronger players like Groupon, Taobao, Q100 etc. Basically there are so many big and small ecommerce players and deal sites are not focused yet.

So happy for Patrick and partner. And patrick linden has a new challenge to run as CEO with Patrick Grove as chairman. Rebate I guess will be happy since they own 62% and have a successful exit.

As for other deal site clones and other ecommerce players, this deal may not be that great. It offers a new competitor that is listed and regional. And it also values them at 1 time revenue which is quite a lot lower than the Series A rounds where i am hearing valuations of 1.5 to 2.5 or even higher valuations.

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