By Blanka Mona (University of Edinburgh)
Deal Overview
Acquirer: Adevinta ASA
Target: eBay Classifieds Group
Estimated Value: $9.2bn
Announcement Date: 21 st July 2020
Acquirer Advisor: Citigroup
Target Advisor: Goldman Sachs and LionTree
Adevinta, a Norwegian online classifieds company, beat out the competition after a multi-month auction process and will acquire 100% of eBay Classifieds Group in the biggest classified advertising deal in history. eBay will receive $2.5bn in cash and 540m of Adevinta’s shares. eBay will have a 44% stake in pro forma Adevinta with a 33.3% voting stake, and eBay will be entitled to appoint two directors to Adevinta’s Board. This acquisition will help Adevinta reinforce its online advertising presence and will quell activist investor concerns calling for eBay to focus on its main marketplace. The deal, expected to close by the first quarter of 2021, will create the world’s largest online classifieds company.
Figure 1 - Adevinta + eBay Classifieds Group Investor Presentation (Adeventia)
“With the acquisition of eBay Classifieds Group, Adevinta becomes the largest online classifieds company globally, with a unique portfolio of leading marketplace brands,”
Adevinta Chief Executive Rolv Erik Ryssdal
Company Details (Adevinta)
Adevinta is a global online classifieds company, operating digital marketplaces in 16 countries with a particularly strong presence in Europe. Adevinta includes local brands such as Leboncoin in France, InfoJobs in Spain, and Subito in Italy. Currently, its sites attract an average of 1.5bn visitors every month. Its marketplaces focus on motors, real estate and jobs. The company’s revenue has been driven by its core verticals, while its revenue from display advertising has been growing more slowly due to tougher competition in key markets.
Founded in 2018, headquartered in Oslo, Norway
CEO: Rolv Erik Ryssdal
Number of employees: 4,700
Market Capitalization: $10.9bn
EV: $11bn
Revenue: $813m (2019)
EBITDA: $227 (2019)
EV/Revenue: 13.5x
EV/EBITDA: 48.5x
Company Details (eBay Classifieds Group)
eBay Classifieds Group is a global collection of 12 classifieds brands including Autotrader, BilBasen, Gumtree, and Vivanuncios. The company has a particularly strong presence in Germany, Canada, and Benelux, and its revenue is driven by its motors brands and advertising revenue.
Founded in 2004, headquartered in Amsterdam, Netherlands
CEO: Jamie Iannone
EV: estimated $8bn - $10bn
Revenue: $996m (2019)
EBITDA: $369m (2019)
EV/Revenue: 9.2x
EV/EBITDA: 24.9x
Projections and Assumptions
Short Term Consequences
In the short term, Adevinta’s acquisition of eBay Classifieds Group makes sense for a number of reasons. Firstly, Adevinta’s acquisition of eBay Classifieds Group is in line with Adevinta’s strategy articulated during its IPO last year, whereby Adevinta has made it its mission to expand quickly through acquisitions. As this has been Adevinta’s clearly stated vision, it is also expected that shareholders will be in support of this deal. Adevinta has acquired a number of brands in recent years, so its growth through acquisition isn’t surprising, but as this deal will double Adevinta’s market capitalization, this will be by far Adevinta’s largest acquisition to date. Secondly, Adevinta’s revenue from display advertising, while still accounting for 20% of its business, has been falling considerably over the past years, partly offsetting the strong growth realized from its core verticals. This is primarily due to the tough competition from giants such as Facebook and Google. As eBay Classifieds Group has managed to maintain healthy revenue from advertising, the consolidation of these businesses, will not only help Adevinta rid itself of one of its competitors but as a larger business, it may also be able to raise its margins in advertising.
For eBay, this deal makes sense primarily because activist investors have placed pressure on eBay to focus on its main marketplace and sell off its secondary businesses. Also, eBay sold its StubHub ticket-reselling business last year and has a history of spinning off its secondary businesses (such as Skype and PayPal), so eBay’s sale of yet another of its non-core businesses is not surprising.
Long Term Upsides
The high growth in e-commerce has spurred the shift from the traditional classified ads sections in newspapers to online classifieds websites. Particularly as a result of the Covid-19 pandemic, the classifieds market has grown and is expected to continue to do so. Nevertheless, particularly European and other developed markets have become saturated with tough competition placing a toll on revenues. As these market conditions can be expected to remain for years to come, Adevinta’s acquisition of eBay Classifieds Group fits the ongoing consolidation of the global online classifieds industry. Moreover, an ongoing trend in the industry is that customers are moving away from using classifieds websites on desktops and are instead using mobile phones. In order to be able to stay competitive, Adevinta has highlighted that eBay’s greater mobile know-how will help Adevinta catch up with this market trend.
An important long term advantage for the combined entity is how well they complement each other geographically. Currently, almost 75% of Adevinta’s revenue comes from France and Spain which are countries where eBay Classifieds Group has little market power. Concurrently, more than 80% of eBay Classifieds Group’s revenue comes from Germany, Canada, and Benelux. As Adevinta has hardly or no presence in these markets, this acquisition will expand Adevinta into a number of lucrative markets and make it a truly global classifieds company. The combined company will be the market leader in all 20 countries in which it will operate. Nevertheless, this does not mean that Adevinta will have to take on brands in markets it is entirely foreign to. Most of the countries in which the combined company will operate are European and are countries with markets similar to the ones Adevinta already operates in. For instance, Adevinta’s experience in French markets will undoubtedly help it in running the eBay Classifieds Group brands in Benelux, due to their similar market conditions and culture.
Figure 2 - Adevinta + eBay Classifieds Group Investor Presentation (Adevinta)
However, as Adevinta and eBay Classifieds Group largely operate in different geographies, the benefit from cutting operational overlaps seems limited. Nevertheless, Adevinta expects approximately $150m - $185m in annual savings on EBITDA within three years of closing the deal. Two-thirds of this is expected from cost synergies, particularly from function deduplication and IT service consolidation.
This acquisition will also further diversify Adevinta’s portfolio of assets as the core verticals the two companies focus on complement each other very well. For example, eBay Classifieds Group has more motors brands than Adevinta, while Adevinta has a stronger presence in real estate and jobs brands. Thus, the combination of these two companies will result in a more balanced company with a truly all-encompassing portfolio of global brands.
Adevinta has also repeatedly highlighted the close cultural fit between the two companies, allowing them to pursue a shared vision. As the combined entity’s long term health and ability to realize the expected synergies depends largely on their ability to integrate smoothly, the close cultural fit between the two companies is a promising long term factor to this deal.
Risks and Uncertainties
One of the greatest risks for mergers is whether the two companies can successfully integrate and adopt a shared vision to create value. While this deal is an acquisition and Adevinta has frequently expressed the close cultural fit between the two firms, eBay will own 44% of the combined entity, and will have a 33.3% voting right. Thus, eBay will keep a prominent stake in the combined company which may hinder eBay Classifieds Group from fully integrating into Adevinta and may impede Adevinta from following its own strategic vision. Also, as eBay’s marketplace is a competitor to Adevinta in terms of digital advertising, eBay may seek to impede the combined entity from competing with eBay in that business segment.
Another risk is that while eBay Classifieds Group has managed to maintain digital advertising revenues relatively high compared to Adevinta, the high competition in the market may result in margins being pushed even further down. As 35% of eBay Classifieds Group’s revenue comes from advertising, a large part of revenues Adevinta expects to obtain from eBay Classifieds Group’s business, may be unattained in the end.