An OnlineMarketplaces Deep Dive into the Adevinta - eBay Classifieds Deal

There can be little doubt that the biggest news of the year so far in the online classifieds industry has been the deal announced in July that saw classifieds giant Adevinta agree to buy eBay’s classifieds division. The deal is set to cause tectonic shifts in the balance of power across the world of online classifieds in several verticals including real estate. As assets start to be moved and money raised to finance the most expensive deal in classifieds history we take a look at some of the key questions around Adevinta and eBay Classifieds’ union.

Why did the deal come about?

eBay as a whole underperformed the market throughout 2019 and activist investors in the shape of hedge-funds Starboard Value and Elliott Management had been putting pressure on eBay’s management to divest assets, even entering into a cooperation agreement with the company in March 2019. eBay agreed to a $4 billion deal to sell StubHub to Viagogo in November 2019, but that was not enough for some and Starboard wrote a letter to eBay management in February 2020 expressing discontent “with the speed and lack of urgency” that eBay was carrying out its strategic reviews.

Some of eBay Classifieds’ titles, especially generalist sites such as Kijiji in Canada and Marktplaats in the Netherlands, were seen as already competing with eBay’s main site and a spinoff company or divestment was seen as a logical step for the classifieds division.

Why Adevinta?

There was a veritable who’s who of large classifieds companies supposedly in the running to acquire eBay Classifieds. With $60 billion worth of assets under management and experience in property classifieds with Zoopla, Silver Lake may have had the firepower but perhaps not the stomach or expertise to take on and actively run eBay’s classifieds titles having just plunged significant funds into Airbnb at a time of crisis for the vacation rental market.

The other deals reportedly on the table were from a triumvirate of VC firms (Hellman & Friedman, the Blackstone Group and Permira), Naspers offshoot Prosus and Adevinta. eBay was understood to prefer a single buyer, leaving Prosus and Adevinta as the only realistic deals on offer.

The deal with Prosus was reportedly an all-cash offer and worth slightly more than the Adevinta deal which was a cash plus equity deal that would see eBay take on shares of Adevinta. Ultimately eBay decided to keep a stake in its classified assets and opted to sell to Adevinta in a deal that looked a lot more like a merger than the proposed sale to Prosus.

Another reason for the selection of Adevinta’s proposal was that the company’s current portfolio of classifieds titles is strongest in France, Spain and Brazil and was not seen as competitive to eBay Classifieds’ main sources of revenue which are Germany, The Netherlands and Canada. In fact, Adevinta, and Schibsted before it, had grown in parallel with eBay Classifieds and as a result, the two companies’ portfolios grew to be complementary and based along broadly similar lines without too much direct competition over the years.

What have they paid?

The headline figure is $9.2 billion which makes the deal the largest in online classifieds history and even more expensive than the $8.7 billion privatization of Chinese generalist 58.com in June.

Being more of a merger than a buyout, the deal sees Adevinta pay eBay $2.5 billion in cash and eBay takes on 544 million Adevinta shares representing 44% of all shares and 33.3% of the voting rights. As part of the deal Schibsted, Adevinta’s current majority shareholder and the company from which it spun off in April 2019, agreed to acquire eBay’s Denmark assets for $330 million.

Where is the money coming from?

For a company whose market cap was around $8.5 billion before July, the deal with eBay will double the size of Adevinta as a company and will require a fair bit of fundraising. Before the eBay deal, Adevinta had already committed to paying €580 million towards the joint purchase of Grupo ZAP in Brazil with Prosus as part of its joint venture in OLX Brazil, and with half-yearly operating revenues of €343 million and EBITDA of €87 million (-4% and -6% respectively on 2019) the company clearly needs to raise funds to pay eBay.

The sale of leading Colombian property portal FincaRaíz and leading Moroccan and Tunisian generalists Avito and Tayara to Frontier Digital Ventures in October for 56 million Australian dollars will make a dent, but the significant financing for the deal is to come from a bond issue announced on the 19th of October which will raise some €1.06 billion as well as from two loans worth a combined €1.325 billion.

The use of external financing for the eBay deal can be seen to represent something of a break with the conservative norm with which Schibsted operated prior to 2018 when it “financed acquisitions and investments with cash from operations”.

What is Adevinta getting for its money?

eBay Classifieds is one of two reportable segments of the eBay business (the other being Marketplaces which includes the famous ebay.com). The classifieds division is present in 13 countries with Germany, The Netherlands and Canada being those where its presence is strongest, between them representing 81% of eBay Classifeds’ revenues over the 12 months ending June 2020.

Of the 17 different sites under eBay Classifieds, generalist marketplaces Kijiji, Gumtree and Marktplaats as well as autos vertical Mobile.de are considered the leading brands. The group’s sites attract some 26 million daily visitors between them in markets with a combined population of 540 million.

The EBITDA margin of eBay Classifieds in 2019 was 34.6% with operating revenue at €952 million, a figure which grew substantially from €863 million in 2018. So Adevinta is taking over a business with a very healthy and growing turnover.

Interestingly, despite being two ostensibly very similar businesses, the revenue split of eBay Classifieds is somewhat different from that of Adevinta. Whereas eBay Classifieds generates almost exactly two-thirds of revenue from classifieds advertising and the remaining third from advertising, Adevinta’s split was 77% from paid classifieds and 19% from advertising for 2019. The difference may be a reflection of the fact that Adevinta’s current portfolio includes more vertical sites that are generally more profitable and contribute 92% of that 77% reported by Adevinta compared to 84% of eBay Calssifieds’ 66%.

How does this affect the ecosystem?

To quote the memorandum published by Adevinta’s management in October of 2020:

“The combination will create a globally scaled pure-play online classifieds leader and the world’s largest online classifieds company (excluding China) based on revenues generated from online classifieds listings and advertisements. The transaction will result in a leader in the global online classifieds industry, operating online classifieds sites in 20 countries as of June 30, 2020.”

Adevinta will reach a combined population of over 1 billion mainly in developed countries and according to the company’s memorandum, it will become the market leader in 19 countries for various different classifieds categories. In doing so, Adevinta believes that it will have sufficient diversity to reduce exposure to any one market or listings category.

Because the two companies do not currently have a lot of overlap in terms of the main countries in which they operate, the classifieds landscape does not change too much in many countries. In Mexico (where Adevinta operates segundamano.com and eBay operates Vivanuncios) and Italy (where Adevinta runs Subito and eBay runs automobile.it) there will be some sort of “in-market consolidation”, though whether this means consolidation of brands is unclear.

Through the deal, Adevinta will become the kingpin overnight in several categories, notably general classifieds in The Netherlands and Canada and cars in Germany.

How will Adevinta incorporate and manage its news assets?

With so much time and effort required to make the deal work on top of the money, there is no guarantee of success and a smooth integration and consolidation will be key. As two companies with very similar businesses though there are obviously a lot of easy wins ready to be enacted (between €134 and €165 million of potential synergies within 3 years according to Adevinta). These include product and technology (€66m), administrative (€31m), and ad serving.

The two companies have similar profiles of management teams that are both proficient with mergers and acquisitions and as for personnel changes Adevinta is not giving any hints and is towing the usual corporate M&A party line in its memorandum:

“Our culture aligns strongly with that of eBay Classifieds, with a shared emphasis on human connections, inclusion, trust and diversity, which are all qualities which will facilitate integration and in turn enable swift execution on our future strategy.”

One definite change will be to the contribution of each of the verticals to revenue. Whereas Adevinta was generating the majority of its classifieds revenue from the real estate vertical, with the completion of the eBay deal, its most important vertical will be cars, which based on 2019 figures, is expected to contribute 40% of total revenue compared to 15% for real estate, 7% for jobs and 10% for generalist.

What is the strategy of this new force in classifieds going forward?

The stated goals of Adevinta apparently remain the same as those stated on IPO in April 2019. Management will certainly be looking to increase monetization of the generalist classifieds sites which may involve investing in adjacent markets with new technology as well as verticalizing general classifieds as much as possible and delving into “new business models such as transactional models”.

As for vertical sites, real estate and cars are the two singled out as areas to target as niches that are still undergoing digitalization. Expect to see a much more end-to-end focus potentially along the lines of Cazoo in the UK for cars.

Despite having just spent a figure well over its own market cap on an acquisition, Adevinta does not rule out further acquisitions, even those outside its core business. Back in May, the company invested €28 million in healthtech company MedWing, so don’t be surprised to see further plays in buzzy sectors such as fintech or food delivery as the company looks to its mission to “create the opportunity for everyone and everything to find their matching needs on our online classifieds sites.”