Classify that! A glimpse into the $15B take-private of Adevinta

Saurabh Saxena, Head of Investments and Acquisitions for AVIV, the Digital Classifieds arm of Axel Springer, contributed to the article.

The halcyon days of outbound M&A by European multinationals are, arguably, behind us. No more telco mega-mergers or banks trying to crack the US market. 

And yet one industry stands out for its undiminished M&A appetite: media. 

Schibsted, Naspers and Axel Springer have each spent billions buying media assets. One area where they overlap is online classifieds. Now that Adevinta, a Norwegian classifieds rollup spun out of Schibsted in 2019, is being taken private in a €14B ($15B) transaction, it’s worth taking a closer look at the industry. 

A short history of Adevinta

Schibsted is an old-school (AD 1839) Norwegian media company that has transformed itself through M&A. Schibsted’s foray into the online classifieds market began in 2000, with the establishment of finn.no. Soon after, it kicked off an M&A spree. Trader in 2006, Kapaza (Belgium) in 2008, Leboncoin (France) in 2010…and so on. 

Recognizing the growing importance of non-Nordic business, in 2018 Schibsted reorganised itself into two companies. The following year, the international classifieds business was rebranded to Adevinta and subsequently spun off and listed on the Oslo Stock Exchange. 

Having listed currency allowed Adevinta to pull off its biggest acquisition. In 2020, it paid $9B for eBay’s European classifieds business. The acquisition more than doubled Adevinta’s revenue and cemented its market position in Europe. As well as cash, eBay received a 44% stake in the enlarged entity. 

Adevinta was not spared the brutal selloff of 2022: its share price had declined two-thirds peak to trough. Permira’s strategic investment of 10.2% unfortunately coincided with the peak in mid-2021, so perhaps it was no surprise that it pounced just over two years later, joined by Blackstone. Based on Adevinta’s 2023 EBITDA guidance of €620-€650M, the acquisition multiple seems to be in the low 20s. The €4.5B debt piece is a touch below 7X.

Based on the reported unitranche pricing of benchmark plus 575 bps, we’re talking >11% coupon and debt service approaching 80% of EBITDA. Luckily classifieds, like solid enterprise software businesses, have strong cash flow conversion! 

Why all the M&A in the first place? 

Let’s start with the reasons why investors like online classifieds:

• Strong underlying growth – ad budgets shifting towards online 

• High degree of operating leverage and therefore robust cash flow generation

Structurally, the industry lends itself well to consolidation. The underlying product is more or less the same everywhere, which allows to standardise processes and achieve economies of scale around overheads, procurement and marketing. And yet there is a high degree of geographic and industry fragmentation owing to how individual brands were built up. Used-car and property classifieds have very different unit economics, transaction frequency etc., which limits opportunity for horizontal expansion. More on that later.

Being dominant pays off. To quote JP Morgan Equity Research, “the sector has seen the rise of dominant market leaders in their countries/verticals. The virtuous cycle (more visitors on the site driving inventory on the site which again drives more visitors) has resulted in increasing barriers to entry, strong pricing power for established players and strong EBITDA growth.

Conversely, in challenging market conditions, protecting and / or increasing ARPA is difficult for all but the most dominant players. 

Who’s been buying? 

M&A activity has been led both by strategics (Adevinta/eBay, Schibsted/Oikotie) and private equity (Silverlake/Zoopla, KKR/Springer, H&F/AutoScout, Permira/Adevinta, Apax/Baltic Classifieds Group, EQT/idealista). The PE backed Axel Springer has been bulking up its property classifieds business AVIV in preparation for an eventual spin-off.

Finally, Naspers and Digital Classifieds Group have pursued roll-up strategy in emerging markets, in EMEA/LatAm and APAC, respectively.   

Are there synergies?

Absolutely – in the landmark Adevinta / eBay Classifieds transaction, about one-quarter of the estimated synergies were attributed to revenues / cross-sell and the remaining three-quarters to costs. Which corresponds to c.2% of pro forma revenue and c.8% pro forma opex. 

Similarly to software rollups though, revenue synergies in horizontal platforms, such as Adevinta, have proven to be elusive. 

Aside from the low-hanging fruit like embedded finance (e.g. mortgages for homeseekers or loans/finance options for car buyers), synergies between the property/car/recruitment or generalist vertical have proved to be rather low. 

For example, post its acquisition by private equity firm Silver Lake, Zoopla decided to operationally split its property business from other Verticals. 

What’s next?

Expect to see more divestments out of classifieds portals to strategics and PE firms, as they rationalise portfolios. Naspers exiting the perennially underperforming OLX business is one example. Plenty to come out of Adevinta too. 

On the other hand, a number of larger businesses could (re-)IPO in the next 3-5 years – should the markets be conducive. 

In the mid market, expect incumbents to continue to bulk within rentals / property management; mortgage tech; all things embedded finance (brokerage, car financing), AI / computer vision based software layers; and buy to let software. 

Summary

• Scale is key in a given online classifieds market (country + vertical) due to the virtuous cycle of more visitors driving inventory – which again drives visitors…and increases barriers to entry/profits

• Moreover, although cross-sell within horizontal platforms has been elusive, cost synergies can be significant

• Unsurprisingly, private equity has been obsessed with classifieds for quite some time, competing not just against each other but also against savvy strategics like Naspers, Axel Springer and Adevinta

• The $15B take-private of Adevinta, Europe’s largest online classifieds platform, is the culmination of a 20+ year roll-up strategy which has seen it gobble up assets across the property, car and consumer goods verticals

• Both Adevinta’s acquisition multiple (20X+ EBITDA) and the pro forma leverage (7X+) are a testimony to its sticky, high-margin business model