July 20, 2020 / 4:07 PM / 19 days ago

Breakingviews - Seller wins in eBay’s $9 bln classifieds auction

The German headquarters of online marketplace eBay is pictured at Europarc Dreilinden business park south of Berlin in Kleinmachnow, Germany, August 6, 2019.

LONDON (Reuters Breakingviews) - Jamie Iannone, eBay’s chief executive since April, may have chalked up an early win for shareholders in the $41 billion e-commerce group. He’s close to agreeing a $9 billion cash-and-stock sale of eBay’s classifieds business to Norway’s Adevinta, Reuters reported on Monday. Taking the buyer’s richly valued paper holds risk, but also gives the U.S. group upside from consolidation in Europe. 

Adevinta, which itself is only worth $8.5 billion, was last year spun out of Schibsted and is still majority owned by the Norwegian media conglomerate. It beat away rival bidders for eBay’s sought-after online-listings business, which according to Reuters included Netherlands-listed tech investor Prosus and a private-equity consortium. Iannone’s predecessor was pressured into the sale by activist investors including Elliott Management. 

The price looks rich, at roughly 8 times the revenue Canaccord Genuity analysts expect the eBay unit to generate next year. To hit, say, a 10% return on its investment, Adevinta would need to pump up the acquired business’s operating profit to roughly $1.1 billion, according to Breakingviews calculations which assume a 19% tax rate. Potential cost savings will help, as will having greater negotiating clout with advertising platforms like Alphabet-owned Google. Yet the business Adevinta is buying only generated $420 million of operating profit last year. More than doubling that seems like a hard ask, even if the pandemic boosts the number of people selling goods like wardrobes online. 

The deal looks better from eBay’s point of view. Iannone has secured a good valuation, and as-yet undisclosed slug of cash, for a business that’s slower growing than peers. Admittedly, eBay shareholders will take on some of the risk that Adevinta’s share-price collapses: it’s currently valued at an eye-watering 9.5 times 2021 sales, using Refinitiv Smart Estimates. But that’s probably a worthwhile trade. The European online-listings sector is fragmented, and ripe for consolidation. Adevinta itself might be taken over. Prosus, worth 137 billion euros, is a plausible acquirer of the whole business. Private equity groups such as KKR and Hellman & Friedman have also piled into the sector. EBay’s classifieds auction looks like a good deal for the seller.

Breakingviews

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