The hysteria present right now around group buying is at levels we haven’t seen since the Google IPO and the subsequent boom of search engine marketing.
I wrote about the group buying phenomenon and the local activity around the space in September of last year – https://talkingdigital.wordpress.com/2010/09/01/the-groupon-clones-are-coming/
This article revolved around the PBL/MSFT ‘Cudo’ brand launching and I made a few predictions that a load of groups would have their fingers in the pie of their own, or someone elses, Group buying company.
So – since then
– Cudo has launched and begun promotion via PBL assets
– Ten has invested in Our Deal
– Netus has invested in Our Deal
– Sensis has launched a Yellow Pages deals site
– JumpOnIt received $5m of investment from Amazon affiliated Living Social
– Groupon launched StarDeals in Australia
– Groupon sued ScoopOn
– GroupOn offered ScoopOn’s owner Hezi Leibovich $286k USD to sell them the groupon.com.au domain
That’s a lot to happen in 5 months.
But the big thing that happened was Google offered Groupon $6b for a full acquisition … and Groupon turned it down.
Now the rumour is GroupOn is talking to Goldman Sachs about leading their IPO, and the number being talked about in terms of a valuation is $15b. There is talk GroupOn will kick off the IPO boom of the next 18 months, where Facebook, GroupOn, LinkedIn and others are rumoured to be going public.
Google offering such large money to Groupon has legitimised Group buying and moved it from a new, interesting innovation to a must have digital foundation. Google, rightly or wrongly, has this sort of sway.
Group buying is appealing to many (especially bean counters) as the potential revenue upside is significantly higher than a normal ‘digital media’ business (ie one that sells ads next to content). Plus they’re low when it comes to ‘non-sales based’ overheads and generally pretty lean.
In AU there are a handful of these businesses that are not aligned with a larger play – namely ZoupOn, Spreets and Scoopon.
If I was the owner of any of the three businesses above I’d be feeling pretty good right now. There is no doubt all 3 will receive acquisition approaches at pretty solid multiples within the next 6 months. I wouldn’t be surprised if at least one of them has a formal offer on paper with approval subject to due diligence.
Here’s the thing – there’s a few of the larger media companies that will need to be seen to be doing something within group buying. When this happens the market is whipped into a frenzy and offers can go from 8-12x EBIT to numbers more around 25-30x EBIT. Or more. Why? Supply.
Of all the large media players, Seven will need to acquire to get into this space quickly; and Seven buying a company like, say, Spreets is a smart move. Most companies who need an investment like this aren’t going to want to build it from scratch. Seven buying Spreets gives them an instant, cash positive, asset that they can scale up relatively quickly using the media assets at their disposal via Channel 7, Pacific Mags and Yahoo. Seven has shown that it is prepared to acquire established businesses rather than rely on Yahoo! intl assets/kit repurposed for this market (as evidenced by their acquisition of Total Travel and OzTips)
Why do Seven need to be seen to be doing something? Because Nine and Ten have already made their moves and Seven will want to hold the perception with investors that they are a forward thinking, future proof company on top of viable digital trends.
Fairfax is another business that would be closely looking and another business that needs to keep market confidence in their digital efforts high.
FD has made strong profit via its transactions division, and a group buying play is in line with a transaction based digital business. Like Seven, Fairfax has sound media distribution to make a current group buying play bigger. The issue Fairfax would wrestle with is the fact group buying is potentially ‘off brand’ when compared to its more high end print assets. However, the same would have been said when they purchased RSVP under David Kirk, and that buy has been a big success.
News Ltd has its toe in the water via Netus’s stake with Our Deal. Like Seven and Fairfax, investors are looking closely at News and their longer term value hinges on their ability to demonstrate competency in a digital sense. Especially after myspace.
Other people that could be looking at this area are Hannan’s IDM, Lachlan Murdoch’s Illyria, James Packer’s investment group, David Kirk and his new investment vehicle and even companies like Salmat or Wotif. There is never a shortage of funds for something that is red hot and considered minimal risk (again, rightly or wrongly)
Time will tell whether group buying is a sound longer term strategic investment and whether the concept is sustainable in a consumer sales and trade sales sense at current competitive levels. But there can be no denying that right now the investor appetite is at levels we haven’t experienced for a long time and the next 6 months are going to be very interesting.
The big loser. Yellow Pages. Group buying is another bullet for a business that has been bleeding for the past 10 years.