- Four bidders listed as possible buyers
- But has Axel Springer dropped out?
- Could a ‘Reverse Morris Trust’ tip the scales?
Within a few weeks, EBay is likely to decide: Do EBay Classifieds stay? Or go? And if they go, who gets them?
It’s a complicated question, and it’s a tale we’ve told you several times before. (See AIMR21.03, Feb. 13, 2020; AIMR20.29, Dec. 10, 2019, and more.) But now the bids are in – or so “reports indicate” – and negotiations are apparently under way.
A decision is likely in July, although factors like the pandemic, a new EBay CEO and board of directors, and routine difficulty of negotiations, could delay it. The decision could even be, “Never mind, we’re keeping it.” (More about that below.)
If EBay Classifieds Group is sold, will it go as one entity, at a valuation estimated at $10 billion to $12 billion? Or piecemeal? Signs point to “one entity,” but if money talks, it may say “split them up.” Even if the group is sold outright, the new owners may try to maximize value by selling off pieces, or they may be forced to sell pieces to meet regulatory concerns.
Bottom line: The deal’s likely to come soon, and it will almost certainly change the world’s classified / marketplace landscape, especially in Europe.
The activists get their wish
The saga began last year when two activist investors took stakes in EBay and charged management with incompetence. They said the company should spin off StubHub, its ticket marketplace, and EBay Classifieds Group. EBay CEO Devin Wenig stepped down in September; StubHub sold for about $4 billion in November; EBay named a new CEO, Jamie Iannone, who started about two months ago, and the company’s board is being reconfigured. The last puzzle piece is the fate of the classified group, which operates in 13 countries and includes many market leaders and big brands.
Four potential buyers, including two with private equity ties, have been named in media reports as potential buyers. One’s already reportedly out of the running.
In order of our “best choice” down, they are:
- Adevinta, the marketplace spin-out from Nordic publishing house Schibsted, is our front-runner. It has extensive marketplace holdings in Europe; adding EBay’s would make Adevinta the clear leader in Europe. It may have a tax advantage over other bidders if EBay can do the deal using a tax strategy called a Reverse Morris Trust. (See box, “Who’s Morris?”) We also think Adevinta could reap more synergy with the EBay group than other bidders.
- Hellman & Friedman, a P.E. house with significant classified assets, is next. H&F is reportedly bidding with P.E. firms Blackstone and Permira. H&F owns AutoScout24, the No. 2 auto site in Germany that’s also in 17 other countries and a significant factor in at least three of those. Regulators permitting, this would build AS24’s business in Europe, while the buyers could “fatten up” other EBay Classifieds businesses for a later sale. The biggest win would be tying AutoScout24 with Mobile.de, No. 1 in autos in Germany.
- Axel Springer, the German media company, has extensive classified / marketplace assets in Germany and elsewhere, along with other media products. But it may have dropped out of the bidding. (See below.) Axel Springer went private last year in a $7.6 billion deal with P.E. investor KKR, and has funds for acquisitions. If it bought EBay Classifieds, it would be the German powerhouse – the “Schibsted of Germany,” if you will. EBay Classifieds’ German sites EBay- Kleinanziegen.de and Mobile.de deliver 40% of the company’s revenue.
- Prosus is the least likely among the identified potential buyers. In classifieds, Prosus is primarily building “multi- vertical” marketplaces in emerging markets. Acquiring EBay Classifieds would bring critical mass to its operations in Europe and developed markets. It would also jump into the top tier of automotive marketplace owners. But of the four potential buyers, it has the least synergy with EBay classifieds.
In addition to the H&F group, other P.E. companies named as potential buyers include Cinven, Apax, General Atlantic and Sliver Lake Partners. But there’s no indication they are bidders.
Could EBay still back out?
Elliot Management, one of the two activist investors that kicked off the fray, said in January 2019 that the EBay Classifieds Group would be worth $8 billion to $12 billion.
That was long before Covid-19 sent the market reeling.
In Q1 this year, EBay Classifieds revenue was flat year-on-year, reversing 6% growth in Q4 of 2019. But, of course, most of the impact of the pandemic will hit results in Q2 and beyond.
However, in a statement earlier this month, EBay said things at ECG are looking up.
“Classifieds revenues are performing at the high end of previous expectations disclosed on the Q1 earnings call with automotive subscription revenues recovering as dealerships reopen across international markets,” the company said.
Will the pandemic damage the valuation of ECG? Will EBay decide to keep the group? Or might it take the opposite approach: sell as soon as possible, because who knows how the market will change in the future?
So far, it seems EBay and its bankers have read the market well to move the sale forward. Share prices for the big classified groups, including Adevinta and Prosus, are recovering well. Prosus stock, in fact, climbed above its Feb. 20 pre-pandemic price; Adevinta is down just 7%. So we expect the sale to proceed at this late stage.
How might the classified world change? It depends on who gets the prize.
Adevinta: Applying the LeBonCoin model
Adevinta is a master at building verticals within horizontals, and pairing its horizontals with a complementary vertical. It’s done that well in France, where LeBonCoin is particularly strong in auto and housing, and in Spain, with Milanuncios in real estate.
Subito is trying to repeat the trick in Italy, in autos and homes. Deft use of freemium models has been a core element in its playbook.
Adevinta might try to replicate at EBay Classified sites what it has mastered at LeBonCoin:
- In Germany, horizontal EBay-Kleinanzeigen didn’t commercialize until 2017. Could Adevinta supercharge it? Could it drive much more value from Kleinanzeigen / Mobile.de?
- Likewise, what could it do with Kijiji.ca and KijijiAutos.ca?
- … and pairing Automobile.it, part of Mobile.it, with Adevinta horizontal Subito?
- Could it even transform Gumtree / Motors.co.uk in the U.K.?
Adevinta already owns horizontal and vertical businesses across Europe that follow this model, so we believe it is best placed to achieve technology, operational and other synergies by acquiring EBay Classifieds.
Adevinta also owns the horizontal marketplace Shpock in the U.K., which is weak compared to Gumtree. Shpock could be folded into Gumtree or even closed.
H&F and partners: Auto dominance
If the H&F consortium wins, it might try to achieve a dream scenario of merging the top two auto marketplaces in Germany, Mobile.de and AutoScout24.
The consortium would most likely maximize the benefit to AutoScout24 and strengthen other EBay services to be sold, in time, to natural trade buyers or another round of P.E. buyers.
Would regulators allow such a merger? Germany’s antitrust authority, the Kartellamt, might put the kibosh on it. AutoScout24’s revenue numbers wouldn’t trigger an automatic investigation, but there’s still a risk the deal would be blocked. The European Commission competition authority also might take action.
Similar attempts have been blocked in other markets. In Sweden, the competition authority blocked the acquisition of property vertical Hemnet by Schibsted’s horizontal Blocket. But the $1 billion acquisition of Delivery Hero in Germany by Takeaway.com of the Netherlands went smoothly.
Scout24 has previously argued that classified disruptors like HeyCar (owned by Volkswagen and Daimler), CarWow and Auto1 should obviate concerns about an automotive marketplace in Germany. Clearly, AutoScout24 and the H&F team feel a merger might be permitted.
If the consortium wins EBay Classifieds but a merger is blocked, would H&F sell AutoScout24 Germany and keep Mobile.de instead, with the other AutoScout24 sites? It’s hard to imagine a scenario where AutoScout24 in Germany is owned by anyone other than … AutoScout24.
If the consortium wins, AutoScout24 may choose to absorb only Mobile.de from the portfolio. Half of Autoscout24’s revenues come from Germany; merging Autoscout24 and Mobile.de would be transformative on its own. Mobile.de also owns Automobile.it, which would strengthen AS24 operations in Italy, and it would help AutoScout24 at the margins in Austria, another strong AS24 market.
AS24 is also strong in Belgium and the Netherlands. EBay has dominant horizontals, strong in autos, in both: 2DeHands / 2EmeMain in Belgium, Marktplaats in the Netherlands. However, AS24 might face regulatory challenges in these markets. Also, would it want to get into the business of running horizontals? Vertical focus was core to the thinking when it was divested from Scout24.
As for EBay’s other auto assets:
- EBay-Kleinanzeigen would add additional regulatory risk in Germany, but is a very powerful autos asset (No. 3 after Mobile.de and AutoScout24).
- In the U.K. and Canada, Gumtree / Motors.co.uk and Kijiji / KijijiAutos.ca don’t fit AutoScout24’s vertical focus
- Motors.co.uk on its own is too weak a starting point to attack Auto Trader Group in the U.K.
- Gumtree in Australia, which just acquired CarsGuide and AutoTrader, is a poor fit and outside AutoScout24’s geographic scope
‘Fattening up,’ selling off sites
If the consortium acquires EBay Classifieds, would it be held as a group or sold in pieces? With a P.E. buyer, a breakup is almost inevitable. There’s little natural synergy across the group in types of business, geography, stage of development, platform requirements, etc. Even where EBay’s sites have similar strengths, e.g. automotive, there’s not much to combine that would make the whole stronger than the parts. And the sites have largely been run independently without technical, operational or managerial overlap.
It’s a business of great parts. The way to unlock value would be to shape those parts for sale individually to strategic purchasers.
Axel Springer: All about Germany
KKR took a 45% stake in Axel Springer last year with the express goal of growing through acquisition. Its interest in EBay Classifieds would be to solidify its hold on Germany and create a broader European footprint. However, German business publication Horizont reported that Axel Springer dropped out of the bidding. The company refused to comment following an AIM Group inquiry about the bidding.
An Axel Springer / EBay Classifieds combination in Germany would give it the leading recruitment site by revenue, Stepstone; No. 2 and No. 3 real estate sites, ImmoWelt and ImmoNet, and the auto leader, Mobile.de. With its newspapers and magazines, existing classifieds and EBay’s Classifieds, Axel Springer could be to Germany what Schibsted is to Norway, dominant in every classified category.
Both AutoScout24 and Scout24 (real estate) could be hurt badly by an Axel Springer acquisition of EBay Classifieds. If Springer has indeed dropped out of the bidding, the Scouts should undoubtedly be relieved!
Beyond Germany, Axel Springer would most likely be interested primarily in EBay’s continental European classifieds. It would probably aim to quickly dispose of those properties that don’t fit its portfolio, we believe.
EBay apparently wants to sell the business whole; Axel Springer would probably only want pieces. As a result, Horizont reported, “Axel Springer now prefers to look for takeover candidates that are part of the second pillar alongside its classified business: news media.”
Prosus: Building a global leader
If it acquired EBay Classifieds, Prosus would evolve into a global powerhouse, with scale in horizontals and autos, including top sites in Western Europe.
Automotive is the strongest segment at Prosus, led by its verticals like OtoMoto.pl AutoTrader.co.za, Autovit.ro; horizontals strong in autos like Avito.ru and many OLX sites worldwide; and its investment in Frontier Car Group. Adding EBay’s autos operations would bring material scale, and experience in developed markets.
OLX Group, the Prosus unit that runs its classified businesses, is planning a major expansion in the “massive” used-car market in Latin America. In a recent job listing, it described plans to become “the leading car player in the world, as we unleash our strength of operations combined with [artificial intelligence]-enabled products for our end users with over 3,000 employees across 15 countries.”
Prosus would probably incorporate EBay’s auto businesses into its global autos strategy. As with Adevinta, it would presumably work to verticalize EBay’s horizontals, with autos the priority.
Overall, Prosus has less synergy with EBay Classifieds than other buyers, because it has very limited classified operations in Europe, and in developed markets in general.
Gumtree, the EBay horizontal in South Africa, would be a prize as it already owns AutoTrader.co.za, and Prosus could pair the two in autos. However, it would probably run into regulatory trouble. The competition commission recently blocked an attempt by Naspers to buy WeBuyCars, a major used- car buy / sell business.