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Thursday, November 5, 2015

iProperty sold to REA group in biggest dot com exit in ASEAN to far

I have met with Patrick grove two or three times last 10 years. Always impressed me with his deal making prowess. He has done it again by getting REA to pay 28.7 times last 12 month sales (not profit!). Furthermore on a forward earnings basis, iProp is expected to do about A$35-40M if they maintain growth rate of > 50%. Divide by A$750M valuation and we get about 19-20 times forward sales. Either way we look at it, this is a super high valuation that exceeds what all companies including SAAS companies get which is about 10 to 20 times sales. It eclipses both the Zopim and Hungrygowhere multiple by a factor of 2! Also to note, it has not even broken even and is slightly loss making though MY is solidly profitable.

So what could prompt REA to pay so much? Obviously it is a new geographical market in countries where buyers are like Australians pretty crazy about property. iProp operates in Malaysia, HK, SG, ID and Thailand. So from a geographical synergy point of view, it makes great sense. REA has also tested waters owning a <20% minority stake in iProp for quite a while already. So they are clearly comfortable with the ex REA management team that Patrick has gathered for iProp.

In addition, the demographics are in favour of Asian property portals. The population here is huge and HK is an entry into the China market. Both make for excellent long term stories to investors of REA.

The other synergy could be in terms of putting REA practices to help leapfrog what iProp does to really rule the region. iProp is relatively basic classifieds system and maybe with REA better products and processes, it can accelerate growth even quicker and take a lead over chief competitor Propguru in the region.

Of course REA can afford the acquisition, they have about 280M EBITDA, strong cash position of A$80M which will allow them to finance the needed 480M debt comfortably. On the competitor side, Propertyguru will probably view this as a positive as it takes time for new management to effect positive change and this kind of valuation will probably help them in their next rounds or IPO. Propertyguru has raised a lot of cash last few years and so will probably be able to take iProp on even with REA as a shareholder. A possibility could be for REA to do what SEEK did (bought out both JobsDB and Jobstreet) and buy out both iProp and Propguru since in terms of revenues, I believe the overlap is not huge with Propguru being so dominant in SG while iProp does so in MY.

SO WHO GETS WHAT?

In terms of shareholders, iProperty major beneficiary will be the shareholders of Catcha Pte Ltd which owns 16.7% or about 31M shares worth A$124M. Patrick last I checked owns about 61.5% of Catcha Pte Ltd, so that is a A$76M payday. Very similar to what Jobstreet Mark Chang got for his sale of Jobstreet last year. He has only 2 other partners, Luke and Ken who own the rest of the 38.5% with Ken having more. Very nice pay day for them too.

Another positive thing is that this deal also gives the shareholders of the companies which Patrick acquired to build up iProp a nice bonus. These smaller shareholders took cash and iProperty shares at various prices over the years depending on when he acquired them. If they held on they would have gotten a nice premium due to this sale. Its a great win win which will help Patrick be even more credible in his future deals when he stitches for more companies together.

The last lesson I have from Patrick is that deal making can be a supremely effective skill set for an entrepreneur. Besides iProp, Patrick via Catcha Group has his fingers in Ensogo, Rev media, iFlix, iCarsasia and also a VC fund! He has leveraged his smallish sized print publishing Malaysian catcha media into a veritable internet empire! And most of it has been done by buying out smaller players who don't have his ability to sell a regional vision and to tap the capital markets in ASX.

Will be waiting to see if he can do the same with the other companies in his portfolio. My hats off to this deal maker!

Ps: there is a break deal penalty of 7.5m and the deal will only complete 1q or 2q next year. So as usual everything needs to look lovely both ways and it ain't over till the money's in the bank!







1 comment:

  1. I appreciate your great work. Thanks for sharing. Keep me more update in future.

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