Wesfarmers to Acquire Catch
Wesfarmers has entered into an agreement with one of Australia’s oldest online retailers, Catch Group, to purchase the firm for $230 million cash consideration. The purpose of the deal is to gain a valuable digital platform and expertise, and provide a marketplace for Kmart and Target customers chasing more products.
The takeover announced on Wednesday would enable Wesfarmers to boost Kmart and Target’s online sales, which are currently less than 3 percent of total group sales, whilst obtaining Catch Group’s expertise in e-commerce, online fulfilment and digital marketing. Subject to completion of the deal, Catch will operate as an independent business overseen by Kmart Managing Director Ian Bailey.
Catch Group operates an online marketplace selling products such as food and liquor, furniture, clothing, footwear, sporting goods, electronics and games. It was founded by Gabby and Hezi Leibovich, the Melbourne Brothers, in 2006. Talk of a listing or a takeover or some sort of deal has swirled around the business for the best part of the past decade. The business currently has around 1.5 million active customers and the platform Catch built provides access to almost 2 million stock keeping units. After spending $230 million cash to purchase the online retailer, Wesfarmers will sell a wider range of products, including food and liquor and furniture to more customers.
The Catch group recorded a $4.2 million revenue loss over the previous financial year. Their net profit included a $5.3 million impairment after Catch wrote down the value of the Scoopon website, which was sold two years ago. Even excluding the write-down, net profit still fell to $1.01 million from $7.09 million.
The $230 million sale price represents a multiple of 13 times the EBITDA of $17.4 million for the previous financial year ending June 30. This multiple is relatively high for a traditional retailer, but low for a fast-growing e-commerce business.
“We feel we’re paying a fair price for what is a cash-generative profitable business with a lot of potential and with systems and capabilities which are very difficult to replicate,” Rob Scott, the Chief Executive of Wesfarmers said the day before the conglomerate’s annual strategy update.
Big payday for Catch’s founders
It is said that Catch had been planning a $200 million to $300 million IPO after cancelling on a proposed $200 million float late last year.
The deal represents a second big payday for Catch’s founders, Gabby and Hezi Leibovich. The Leibovich brothers currently own 90 percent of Catch and the remaining 10 percent is owned by management and staff, which means the brothers can pocket around $207 million from Wesfarmers deal. The first payday for them was the $206 million sale of their interest in online food business Menulog, and they used the proceeds in 2016 to buy back a 40 percent or $80 million stake in Catch, which was owned by investors including James Packer, Seek co-founder Andrew Bassat and Tiger Ventures.
Wesfarmers’ spending spree
Wesfarmers is cashed up after spinning-off Coles last November and selling a pile of assets including Queensland coal mine Curragh for $700 million, its 40 percent stake in the Bengalla mine for $860 million, its 13 percent stake in Quadrant Energy for $US170 million and Kmart Tyre and Auto for $350 million.
This year Wesfarmers has already made a $776 million takeover bid for Kidman Resources, and a failed $1.5 billion bid for Lynas Corporation.
Mr Scott dismissed suggestions that Wesfarmers was in a rush to spend its cash. “There is no rush – there are only two active acquisitions that are being progressed at the moment, Kidman and Catch.”
“A couple of deals have just coincidentally come about within a few months,” he said. “They’re pretty modest investments for a group with a market capitalisation of more than $40 billion, but they are very exciting bolt-on acquisitions that create growth platforms for the group.”
Many fund managers questioned the deal, saying that while the price looked reasonable, Catch Group’s market share was likely to shrink in the long term under the threat from Amazon Australia. They also pointed to Woolworths’ unprofitable acquisition of online and catalogue retailer Ezibuy in 2013 to boost BIG W’s e-commerce capabilities. Woolworths sold EziBuy to Alceon Group in 2017 after writing down the value of the failed business by $309 million to just $30 million.
Ultimately, Mr Scott claims Wesfarmers saw plenty of growth opportunities ahead for Catch, and the firm’s owners are optimistic, anticipating annual revenues to rise to $1 billion as a result of the deal.
By Frank Zhang
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