[FoRK] Fairfax buys trademe for $700M (NZ)

Kieron Lawson < kieron at developments.co.nz > on > Mon Mar 6 00:15:35 PST 2006

Ok, so in the big scheme of things, this is small peanuts, but, its
pretty huge for an NZ company:

 - In a country of 4m people, trademe has 1.2m registered members.
 - Trademe accounts for 60% of web 'traffic' (I assume this stat means
hits, not bandwidth)
 - Their FY 2006 EBITDA is $25m, projected to be $45m FY 2007
 - Fairfax paid $700m NZD cash for 100% of trademe, with an additional
$50m cash to the founders in the next two years if they meet
performance targets
 - Trademe has 16 shareholders, none of whom appear to be VCs or
otherwise, easily discovered if you go to companies.govt.nz and do a
registered search for 'trademe'
 - The next biggest tech acquisition of an NZ company that I can think
of is Symantec's acquisition of Ghost a few years back for
NZD$50m...although you could count Navman more recently, I guess.
 - Everyone I know (in NZ) has a trademe experience.  Everyone.  My
father earned a living off it for three years. My brother and sister
in law sold their entire household before moving to Perth, Australia,
last year...one of my developers sold some crappy phone cards from
Germany last week. Yadda, yadda, yadda it's like we run a mini trading
micro climate over here or something.

Trademe somehow managed to gain a monopoly position in the NZ trader
market between 1999 and 2002 while ebay was establishing a monopoly
foothold in every other market.  For some reason, the ebay hubris
(and, quite frankly, shitty UI) didn't appeal to the average kiwi. 
Legend has it that Sam Morgan, as a poor student and geek decided he
needed a heater for his freezing Wellington flat and couldn't find
one...it grew from there and 7 years later he still holds 30% of the
company (and his father 10%) and he's worth a serious chunk'o'money.

Anyway, that's the requisite bits (that's still required on FoRK
right, or are we a bit slack about that now?)

from stuff.co.nz (yeah, its a fairfax property, but APN are worse
about bit persistence these days):

===========================================
http://www.stuff.co.nz/stuff/0,2106,3594999a13,00.html
The bids are in for Trade Me
06 March 2006
By KATE PERRY

University drop-out turned website wunderkind, Sam Morgan, stands to
make over $220 million through the sale of the online shopping website
Trade Me, which he founded seven years ago.

The Australian media firm John Fairfax Holdings today agreed to buy
Trade Me for $700 million in cash, with a bonus $50 million to be paid
if the company meets certain earnings targets over the next two years.

Fairfax chief executive David Kirk pledged it would be business as
usual for Trade Me employees and customers, with Mr Morgan contracted
to remain at the helm.

"The business will be run absolutely as it is today. There's not a lot
we can do to improve the way the business has been run and developed,"
Mr Kirk said.

Mr Morgan set up Trade Me in 1999 when he was a 23-year-old university
drop-out, working as an IT consultant for Deloittes Consulting.

The company received seed funding from AMR Holdings, a small
Wellington venture capital company established by some of Mr Morgan's
former colleagues at Deloittes Consulting.

According to the Companies Office, Mr Morgan holds just over 63,000 of
Trade Me's 194,730 shares, which without counting the potential bonus
payment, means he stands to make about $227 million.

In the seven years it has been running Trade Me has developed into the
country's most visited website. It has 1.2 million members who are
expected to host 35 million auctions this year, selling anything from
second hand furniture and clothes through to antiques and cars.

Trade Me does not charge users to list an item for auction online, 
but charges a commission on each sale.

Trade Me has also gained a large slice of the classified advertising
market, launching real estate classified ads last year and cars in
2003. Unlike auction items, Trade Me charges an upfront listing fee
for classified ads and has over 34,000 cars and 15,000 properties are
for sale or rent on the site.

Trade Me's growing slice of the classified advertising market was  one
of the reasons it was so attractive to Fairfax.

Peter Fowler, founder of the news and shopping website newswire.co.nz,
said Trade Me's growing classified presence had been killing
classified advertising in newspapers and cutting into Fairfax's
revenues.

"Given that classified advertising has been the key to the
profitability of newspapers, Fairfax has been forced to buy Trade Me
or risk being overtaken by the Internet phenomenon," Mr Fowler said.

He said the $700 million purchase price was "astonishing" given that
Fairfax paid just $500 million more in 2003 when it bought Independent
Newspaper Ltd's newspaper and magazine portfolio, including the
Dominion Post, The Press and Waikato Times.

Potential buyers have been sniffing around Trade Me for years, with
rumours linking the website to eBay, magazine publisher ACP Media,
Telecom and Fairfax-rival APN.

In December last year media reports said Trade Me had an asking price
of at least $100 million, with just a couple of sources picking it
could go for as much as $500 million.

Mr Morgan confirmed today he had had conversations with various
parties over the past few years, but said Fairfax was the first
company with which he had had a "meeting of the minds" on the value of
the company.

Mr Kirk said the purchase price represented about 15 to 16 times
forecast earnings before interest, tax, depreciation and amortisation
(ebitda) for the 2007 financial year.

Mr Kirk said the price was consistent with earnings multiples paid 
for quality Internet businesses.

Grant Williamson, partner at Christchurch brokerage Hamilton, Hindin,
Greene, said the high price tag had come as a huge surprise to the
market, but showed Fairfax was confident in Trade Me's prospects in
New Zealand.

"Trade Me is the most viewed website in New Zealand, the most used.
Therefore for a company like Fairfax it must offer some huge potential
from the advertising point of view," Mr Williamson said.

But ratings agency Standard & Poor's downgraded its long term
corporate outlook on Fairfax from stable to negative following the
purchase announcement.

"Notwithstanding the acquisition's strategic merit, the group's
appetite for financial risk remains a key focus for the rating,
particularly given the likelihood of Fairfax making further
acquisitions in the online space in the short-to-medium term," said
S&P credit analyst Paul Draffin.

 Mr Kirk said Trade Me was the best possible opportunity in
Australasia for Fairfax to continue diversifying its earnings, with
the purchase expected to lead to "a very material increase in
Fairfax's earnings from Internet businesses".

"With our own Internet businesses in Australia, this materially
increases Fairfax's exposure to the Internet and therefore to a faster
growth profile for the whole business," he said.

Fairfax will fund the deal through a mixture of debt and equity.

The deal, which is subject to final due diligence and regulatory
approval under the New Zealand Overseas Investment Act, is expected to
close in April.

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