Fund managers sounded out over pricing of Trade Me float

Wednesday 26th October 2011 1 Comment

Fund managers are being sounded out to determine the level of demand for a partial float of online auction business Trade Me by owner Fairfax Media before Christmas, which may raise $300 million.

Fund managers have signed confidentiality agreements for the process of selling 30-to-35 percent of Trade Me.

A bookbuild is planned for Nov. 8 and Nov. 9 for the float and that the company will list in both Australia and New Zealand, the Australian Financial Review reported.

Fund managers said the date was consistent with a listing before Christmas but they did not have documentation for that bookbuild. A prospectus has not yet been registered for the float.

The rationale behind the float is that it will raise much-needs about will raise funds for Fairfax and the online business will be valued higher by the market if it is separately listed.

UBS is the sole lead manager for the float. Fund managers spoken to by BusinessDesk say they have seen documents suggesting a valuation of more than $1 billion for the whole business.

Fund managers seem to be comfortable with valuations around 16 times projected net profit for 2012, arguing this is in the ballpark for digital businesses. But this is regarded as being the top end of a range.

The process of the float is being managed around the New Zealand election on Nov. 26 and there is a desire to get the float away before the summer holidays.

Fairfax acquired Trade Me for $750 million in 2006. Founder Sam Morgan is on the Fairfax Media board and former All Blacks captain David Kirk, a former Fairfax chief executive, is set to chair the demerged company.

Fairfax-owned BusinessDay has reported that a UBS research report forecasts a profit of $68.6million for 2012, with Trade Me's board apparently committed to paying 80 percent of net profits in dividends.

Fairfax Chairman Roger Corbett said in the annual report that the company had announced an intention to pursue the partial float of Trade Me on the New Zealand Stock Exchange, with Fairfax Media to retain a shareholding of between 65 and 70 percent.

"We believe that Trade Me has developed to the point that it is poised to flourish as a listed company, while providing the business with independent access to capital markets in order to fund growth which will be in the interests of both Fairfax Media and Trade Me," he said.

Fairfax would only proceed if shareholder interests were being well served, and price requirements were met, he said.

Trade Me Holdings Ltd and Fairfax Digital Assets NZ Ltd and Fairfax Digital Holdings NZ Ltd have been reserved as names at the Companies Office.

BusinessDesk.co.nz

Comments from our readers

On 26 October 2011 at 11:06 am John said:

From: http://aardvark.co.nz/daily /2011/0608.shtml Trademe worth a billion? 8 June 2011 According to reports on the wires today, it appears that Fairfax may be considering flicking off all or part of TradeMe (TM) in order to appease investors who are a little concerned at the lacklustre performance of the group's newspaper operations. The sale of TM would effectively inject as much as $1.6bn into the coffers and constitute a significant profit on the original purchase price of $700m. That is, of course, if the valuation being touted for today's TM is accurate. And how do you establish the true value of an online venture such as TM? In the old days, the value of a company was usually expressed as a multiple of its earnings. Traditionally, an earnings multiple of 10 or 12 was not too far from the truth. That is to say -- if a company earned $100m per year, its value was probably around $1Bn (ten times the earnings). This simple calculation and the critical number -- the multiple -- was determined by the fact that it was very hard in the pre-internet era, for a competitor or a superior product to appear from nowhere and take over the market of an entrenched player. So, if you paid an earnings multiple of 10 for a company then you could be pretty sure that you'd have the chance to recover much of that money from earnings before the risk of being displaced in the market by a new competitor grew too great. However, these days we live in a much different world, at least as far as online ventures go. It is not uncommon for new companies and services to appear one day and become the dominant player the next. Just look at how quickly the other search engines crumbled once Google came on the scene. Just look at how quickly FaceBook destroyed the market-share of Beebo and the like. And what Apple's iPad has done to the netbook and notebook computer marketplace. Even the unchallenged brand-leader Nokia faces a bleak future thanks to the rapid rise of Apple's iPhone and a plethora of Android phones. The fact is that things chance so rapidly in the hi-tech markets of the 21st century that I don't think that high earnings multiples can be used when valuing a company which operates in these sectors. Ultimately however, a company is worth whatever someone is prepared to pay for it. When it was sold, TradeMe was certainly worth $700m -- because that's what Murdoch paid for it. However, I don't think it is worth twice that today. In fact, I would argue that it's no longer worth the original $700m. Every product and service has a finite lifetime. The longer TM exists, the closer it comes to the day when someone rolls out a better, more attractive, more effective service that captures the hearts and wallets of TM's users. Given the fickle nature of the Net-user, TM could see its revenues tumble in very short order - if and when such a service arrives on the scene. As soon as that happened, they'd be forced into playing catch-up and one only has to look at the history of online ventures to see that once dethroned, few (if any) once-leading services ever successfully make a comeback. So, even though it might show growing revenues and profits, I would wager that the actual value of TM is now in decline. The truth may be that, having seen how its MySpace venture was gutted in a few short years by FaceBook, Murdoch has also realised that it's better to sell TM now than later, if he's to make a profit or even recover his initial investment.