US suitor starts war for Trade Me
A second bidder has emerged for Trade Me, with United States private equity firm Hellman & Friedman saying it might pay $6.45 a share for the firm.
Trade Me shares jumped 3 per cent to a new record high of $6.24 shortly after the announcement.
The offer – if confirmed – would trump another ‘‘preliminary, non-binding’’ cash offer for Trade Me made by British firm Apax Partners last month at $6.40 a share.
Both proposals would value the Kiwi online auction and listings website at a little over $2.5 billion, with Hellman & Friedman’s offer worth about $20m more than its rival’s.
Apax’s bid had represented about a 25 per cent, or $500m, premium to Trade Me’s sharemarket value before its bid was announced on November 21.
Trade Me’s board has allowed both private-equity firms to carry out due diligence, which is an important step before any final offers are finalised.
Trade Me had agreed to give Apax ‘‘exclusive’’ access to its books until December 12, but said that exclusivity was subject to a clause that allowed Trade Me to also engage with other parties if they made unsolicited proposals.
Trade Me cautioned shareholders in a statement to the New Zealand stock exchange that it was possible neither offer would ultimately be made.
Analysis firm Morningstar forecast in a research note last month that it thought there might be about a 50 per cent chance that Apax’s indicative offer would fall through, which it said would most likely cause its share price to fall back.
But with Trade Me’s share price now at a record high only 16 cents off Apax’s suggested offer price and 21c shy of Hellman & Friedman’s indicative offer, investors appear to be getting increasingly confident they will be in the money.
Who is the latest bidder?
Hellman & Friedman is a US private equity firm that has invested tens of billions of dollars in 80 businesses since it was founded in 1984. It tends to make only a few investments each year.
What about the staff?
It is a cliche that private equity investors buy businesses, strip out costs and sell, but major costcutting would appear to make little sense in this instance.
Trade Me is a very highmargin business. It employed only 594 staff at the end of June, and its staff costs totalled $40m last year which represents 16 per cent of its revenues of $250m, or 41 per cent of its net profit of $91m. That means any savings a private-equity buyer did try to squeeze out of Trade Me’s operations would make little difference to its profit, while potentially putting their $2.5b-plus investment at risk.
And customers?
A buyer’s ability to raise Trade Me’s fees is hard to judge. Trade Me still has a stranglehold over the market for selling secondhand goods, though social media platforms . It has strong competitors in its key listing markets of jobs, property and cars. Trade Me has proved time and time again that it can raise its success fees without killing the business, but the risks of it doing so may be constantly rising.