Trade Me shares soar after takeover offer from Apax Partners at $6.40 a share

Wednesday, 21 November 2018

A British private equity company has launched a takeover offer for Trade Me, with an offer price of $6.40 a share.

Trade Me shares leapt 20 per cent, or $1, to a day-high of $6.10 after the offer was revealed to the NZX, before easing back slightly to $5.93 during late afternoon trading. It is the highest Trade Me's shares have traded at.

The offer would value Trade Me, which employs about 600 staff, at $2.5 billion – about $500m more than its sharemarket value when trading closed on Tuesday.

Trade Me described the offer from Apax Partners, which is a British private equity company, as 'a preliminary, non-binding, indicative proposal'. But analysts saw few obstacles to the deal assuming it was finalised and Apax was not outbid.

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Takeover offer underlines Trade Me's growing value in NZ.

The offer is a premium of around 25 per cent to Trade Me's share price on Tuesday evening, prior to the offer becoming public.

Apax Partners was offering to buy the entire business for a cash payment, but the offer was subject to a number of conditions, including the completion of due diligence, Trade Me said.

Apax has investments in the technology and telco industries, including French telco Orange, as well as services, healthcare, and consumer investments. The company is an investor in UK vehicle classifieds business Auto Trader.

Trade Me's board has allowed Apax exclusive access to its books until December 12, so it can firm up a binding offer, however it is allowed to engage with other parties if it was to receive another offer. Trade Me is being advised by Goldman Sachs.

Trade Me said in its NZX statement that it would update the market on any material developments.

The company's current chief executive, Jon Macdonald, announced in June that he would step down at about the end of the year and a replacement has not yet been named.

Founded by Wellingtonian Sam Morgan, and previously owned by Fairfax Media, which also owns Stuff, Trade Me was initially floated on the NZX after raising $363m at $2.70 a share.

Offer 'seems fair'

Grant Davies, an investment advisor at Christchurch wealth management firm Hamilton Hindin Greene said the offer, a significant premium to Trade Me's recent share price, was likely to be supported by shareholders.

'It's a pretty decent premium. It's a premium to the analyst target prices, it's a premium to what it has ever traded at,' Davies said.

Trade Me had moved out of the strong growth phase of its early years and was now more of a 'cash cow', Davies said.

'New Zealand investors have been pretty happy to take the quick buck in the past, and with Trade Me not exactly in the high growth category anymore, it's probably likely to go through, subject to the conditions of the offer, of course, which we don't have exact details on yet.'

While the offer was 'not exactly a done deal', Davies said Apax were likely to be serious about making an offer.

'These guys are London-based private equity. No doubt they'll have their due diligence to do, but they're not playing silly buggers, that's for sure.'

Who is Apax?

Apax Partners describes itself as 'an independent global partnership' focused solely on long-term investment in growth companies.

Funds advised by Apax Partners typically invest in technology, telco, services, healthcare and consumer businesses with an enterprise value of between €1bn (NZ$1.67b) and €5bn – putting Trade Me well within its sweet spot.

Its portfolio companies employ more than 150,000 people in businesses that at the end of 2016 generated combined revenues of more than US$21b (NZ$31b).

TRADE ME TIMELINE

1999 Trade Me is founded by Sam Morgan, aged 22. NZ InfoTech reports in March that it has about 20 registered users after two days, and quotes Morgan saying he is happy with that 'considering the lack of publicity to date.' He is running the site on a Dell server.

2000 People who have bought and sold through Trade Me now total 20,000. Company begins letting people bid on auctions via text message.

2001 Trade Me buys flat listings website Flathunt and announces plans to diversify into travel, cars and mortgages.

2003 The Dominion reports Trade Me has now cornered the online auction market. Company employs 12 staff and is seeing 500 new members sign up each day.

2005 Publisher ACP reported to be interested in buying Trade Me. A banker says there is a big gap in the price Morgan wants (which he suggests is $100m) and what buyers are willing to pay ($30m-$40m).

2006 Fairfax Media stuns many by buying Trade Me for $700m, with Sam Morgan pocketing $227m from the deal. Trade Me is now Australian-owned.

2011 Trade Me floats on the NZX valued at just over $1b, with Fairfax cashing in about 35 per cent of the business. Trade Me's 200 staff each receive $999 worth of free shares with 25 senior executives enjoying a bonus of $687,000.

In June, Trade Me announced its chief executive Jon Macdonald was leaving the company around the end of this year. The company is yet to name a replacement.

2012 Fairfax sells its remaining 51 per cent stake in Trade Me for $770m, taking its total estimated proceeds from its investment – including dividends, loans and share sell-downs – to about $1.7b. Trade Me is now an independent NZ company once again.

2016 Trade Me announces Sam Morgan will stand down from Trade Me's board, saying he wants to rebalance how he spends his time.

2018 British investment company Apax Partners signals desire to buy Trade Me for $2.5b, a substantial $500m premium to its market value on the NZX prior to the announcement, sending Trade Me shares to a new all-time high.