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Thursday, February 20, 2014

Last of the ASEAN job portals exit, A New Era Commences

AMENDMENT : Read more about the deal. Jobstreet bought all minority stakes in PH, VN and ID before selling the entire 100% entities to SEEK.  Valuation ranges from 3+ to 8 times sales. Depends on market dominance and EBITDA margins i guess. Anyway good deal for everyone but it means my numbers below for key founders need to drop by about 7-8%. 

Also Seek has a clause to keep Suresh as employee. Wonder how that discussion went. With about 20M USD, Suresh can easily go retire too. Wonder how he will feel running a company that he no longer has a stake in. Maybe he is viewing the overall Asia job and compete with Adrian who is running JobsDB from HK.... even then, at most they pay 1M a year......about same as what his portfolio can return.....

Disclaimer : I am currently still working as a Regional MD with CareerBuilder which acquired JobsCentral back in 2011.

In today’s world of social media, big data, ecommerce and mobile plays, job portals sometimes feel pretty old school as they have been around since 1997 in this region.  However, looking back at this industry’s history, I find it is a good case study of how a disruptive technology grows in a blue ocean and how widespread adoption of the a business model changes the growth and expansion dynamics of the business.
The news of the week is that the last of my competitors – JobStreet has been sold  for about US$520M to SEEK and at a valuation of about 21.6 times EBITDA for 2013 and 10 times sales.  This is a fair valuation as it is 15-20% better to what SEEK paid for JobsDB just 2 years ago. This is a function of market bullishness now rather than anything else. Business wise, the merger makes sense since the JobsDB and Jobstreet business do not overlap much except in Singapore. Someone did ask me why pay 10 times sales for a relatively matured business. I would say that it is not so much 10 times sales but rather paying 21.6 times EBITDA. Jobstreet has a very enviable 40+% EBITDA margin and shown over the last 5-6 years that they can maintain that kind of profitability level. The worse they did was about 30% back in the GFC.

I have much respect for Chairman/CEO and main shareholder Mr Mark Chang who has a 9.9% stake in the company and who now gets to pocket about S$66M for a good job done over 15 years.  I respect him for his ability to manage costs well, share his capital gains with fellow management and to patiently plug at building the business so that it reaches it's current scale. His fellow management team will get a good exit that will allow them to retire if they want. Albert- CTO owns about the same as Mark, Suresh – COO about 3.9% and Greg – CFO about 2.7%. They are all on average 48 years old and up.  His institutional investors too must be very happy with this exit as one year ago their listed valuation on Bursa was only half what SEEK is paying now.
If I have to speculate why they decided to sell when it seems they still have a good 10 to 15 years to work if they wanted, I would say it is a function of things.

First, SEEK has been a major shareholder owning about 20+% of Jobstreet. This would have been fine until SEEK acquired majority of JobsDB. One can imagine how awkward their board of director meetings must have been.
Second, winds of change are coming to this industry. Job Portals in the USA are being challenged by social media players like LinkedIn and HR is exploring owning their own career sites and taking more charge of their own recruitment and branding. As such,  job portals are increasingly challenged to develop more products and services that go beyond the core portal platform to better address and take advantage of these new trends.

Third, globally job portals are consolidating with now about 6 players worldwide who are worth over 1B USD. Jobstreet as a middle sized player in the region will find it increasingly challenging to keep up technologically with the global players.

So what next? Job Portals are a formidable business. In the region, they are worth over S$200M in annual sales and make EBITDA of about 25-35%. This makes job portals probably the most profitable of internet companies in the past 5 years. And they are really an ASEAN industry with multimillion dollar market sizes in SG, MY, VN, TH, PH and ID. 

They have tons of valuable data on employment and candidates, have large reach into HR community and have the technological and marketing resources to bring them all together. It will be interesting to see how these global players morph themselves in the years ahead.  But one thing i know for sure, don't write them off! 

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