Adevinta’s acquisition of eBay’s Classifieds
By: James Kong & Nicholas Yiassoumis
Adevinta’s acquisition of eBay’s Classifieds Group in July 2020 continued the record-high M&A activity in the e-commerce space in the first-half of 2020. The proposed deal was cash-and-stock; $2.5 billion cash and c. 540 million Adevinta shares. eBay’s sale of its Classifieds business was valued at $9.2 billion and grants Adevinta access to eBay Classifieds’ 12 online classifieds brands operating in 13 countries - a diverse range which includes well-known marketplace brands mobile.de, Autotrader and Gumtree. Together, the combined company will be the world’s largest online classifieds group, spanning 20 countries, covering a total of 1 billion people.
Company Details: Adevinta
Adevinta is an online classifieds specialist operating across 12 countries in Europe, Latin America and North Africa. The company attracts around 1.4 billion users per month to its websites and connects buyers and sellers with focuses on jobs, real estate and motors.
CEO: Rolv Erik Ryssdal
Number of employees: 4,700
EV: €9.4 billion
LTM Revenue: €674 million
LTM EBITDA: €183 million
LTM EV/Revenue: 14x
LTM EV/EBITDA: 51.5x
Company Details: eBay Classifieds Group
The eBay Classifieds Group is a global collection of brands that offer online classifieds in more than 1,000 cities around the world. The company has a strong presence in Europe, Australia, South Africa and North America with over 400 million visits to its websites per month.
CEO: Jaime Iannon
Number of employees: ~43
EV: ~$8-$10 billion
LTM Revenue: n.d.
LTM EBITDA: n.d.
LTM EV/Revenue: n.d.
LTM EV/EBITDA: n.d.
Advisors: Goldman Sachs, LionTree Advisors
The $9.2bn deal grants Adevinta 100% ownership of eBay Classifieds Group; the combined business will benefit from a strong financial profile with estimated $1.8bn in revenue and $600m EBITDA (2019). The deal also follows Adevinta’s proposed growth strategy mentioned during its IPO, which it hopes to achieve through aggressive consolidation.
One of the main beneficiaries of the acquisition was Adevinta’s struggling display advertising business, which formed 20% of its total revenue. In combination with eBay’s Classifieds business, which maintained strong performance in a competitive environment alongside Facebook and Google, Adevinta has simultaneously gained access to eBay’s advertising expertise and partially eliminated some of its competition.
With the sale of eBay Classifieds, eBay continued its trend of divestitures after its previous sales of PayPal and Stubhub, pressured by its activist investors to focus on strengthening its marketplace business. The 44% ownership stake and 33.3% voting stake that eBay acquired in Adevinta, also could be a move in helping eBay suppress competitors to its marketplace, similar in effect to Facebook’s acquisition of Instagram in 2014.
In general, the market views the deal favourably; since the deal’s announcement, despite the CMA’s inquiry, Adevinta’s stock has also appreciated 20% from its price of $12.38 in July 2020, however, depending on the verdict of the CMA investigation, this could be subject to change.
With the considerable development in e-commerce and the growth in the classifieds market due to Covid-19, Adevinta has sought to take advantage of the changing landscape and consumer expectations by acquiring eBay Classifieds Group to become the largest online classifieds group globally. With their scaled pure-play online structure, Adevinta can better compete with the likes of companies like Facebook who leverage social and geographical networks to connect people to products and services to buy.
An important result of the deal is the combined business’ diversified classifieds platform across geographies. Together, the business will have #1 market position in 20 countries globally and 1 billion people covered. Previously, around 75% of Adevinta’s revenues stemmed from France and Spain, with eBay Classifieds Group having little exposure to these areas. More than 80% of eBay Classifieds Group’s revenue originated from Germany, Canada and Benelux, highlighting the highly complementary geographical synergies the companies have. As a result of this, Adevinta will be able to penetrate more lucrative markets and become a global market leader.
Furthermore, the companies have a highly complementary portfolio of assets. With Adevinta’s already potent real estate and jobs presence, eBay Classifieds Group will strengthen Adevinta’s horizontal and autos portfolio to allow the combined business to have a truly universal set of global brands.
Finally, Adevinta has repeatedly highlighted the strong cultural alignment and common DNA between the two companies, leaving the combined leadership in a unique position to deliver their next phase of growth. With their shared set of strategic principles and proven track record of building leading positions in markets of scale, the close cultural fit between the two companies is a promising long term factor to this deal.
Risks and uncertainties
With hopes to complete the transaction in the second quarter of 2021, the eBay-Adevinta deal has not come without scrutiny from regulators or compromise. Just last month, with news of the CMA’s objections to the deal on the 16th, Adevinta’s share price fell ~10% before rising again with the announcement of the undertakings offered to the CMA.
The CMA decided that with the information available to it, the merger may lead to substantial lessening of competition within a market or markets in the United Kingdom. The deal would therefore be referred for an investigation unless the parties offer acceptable undertakings to address the competition concerns. In response to this, Adevinta and eBay offered to divest their stakes in Shpock, Gumtree and Motors.co.uk this March, which has been met positively with the CMA stating that there are reasonable grounds for believing the undertakings offered might be accepted. The CMA now has until April 29 to decide whether to accept the proposal and could extend that to June 28 if there were appropriate reasoning.
The ongoing inquiry by the CMA may be a cause for concern amongst some investors, however is unlikely to be a deal-breaker, as the UK-based businesses of eBay Classifieds Gumtree and Shpock make up less than 5% of the deal value. eBay and Adevinta’s offered terms to divest stakes in these businesses is likely a sufficient solution to garner approval by the CMA.
Perhaps a greater cause for concern for Adevinta’s shareholders comes from the resulting 33.3% voting stake that eBay acquired in Adevinta. In an already fiercely competitive European market, with brands such as Facebook Marketplace, eBay, Etsy, Craigslist and Depop to name a few. eBay’s voting stake in Adevinta could be used by eBay to influence Adevinta’s expansion, reducing eBay’s competition and bolstering its main marketplace business. In this environment Adevinta could face steep competition and future challenges, in which case the 26x trailing EBITDA multiple could prove to be a heavy price to pay.