As public market enthusiasm has starkly cooled on Europe’s once high-flying online advertising and classifieds sector, savvy private equity firms have begun circling what they see as battered yet attractive assets trading at bargain valuations. The latest potential target is Norway’s Adevinta, the owner of leading classifieds sites across Europe such as Leboncoin in France.
On Friday, Adevinta confirmed it had received a non-binding takeover approach from a consortium of private equity giants Permira and Blackstone. In response, shares of Adevinta spiked by over 20% during trading, valuing the company at approximately €13 billion ($14 billion) when including its debts.
Over the last year, investor appetite for European online classified advertising platforms like Adevinta and its former parent Schibsted, which originally spun off the unit back in 2019, has dramatically waned amid a tech sector downturn. Prior to Friday’s spike, shares of both Adevinta and Schibsted had cratered by more than 50% from their 2021 peak levels this past spring.
Several intertwined factors have caused public market traders to flee the sector of late. Growth across European digital classifieds has slowed from the breakneck pace seen during the initial internet shift. High debt loads taken on by companies like Adevinta have become concerning amid rising interest rates. And the heavy ongoing investment required to evolve dated classifieds business models has given investors pause.
However, private equity firms seem to believe with patient capital and operational expertise, they can unlock further value from dominant classifieds businesses like Adevinta. While the basic classifieds model has remained largely static for almost two decades since first moving online, Adevinta is now pushing to capture more of the payments, delivery, and escrow components of transactions, which currently often pass to third parties after a sale is agreed.
This strategy shift aims to counter the rise of potential big tech classified disruptors like Meta’s Facebook Marketplace. Adevinta is pouring up to 20% of its annual revenues back into developing new products and technologies to help this transition. In the second quarter of 2022, the company’s early stage transactional revenue streams already jumped 52% year-over-year, albeit from a relatively low base.
Earnings growth stands to follow, as private equity owners take costs out of the business. According to analysts at investment bank Jefferies, Adevinta can achieve a compound annual earnings per share growth rate of approximately 35% over the next three years. And at the company’s current valuation following Friday’s stock pop, its price-to-earnings growth ratio sits at around 1x, signalling a potential bargain for prospective acquirers.
Permira already owns a 12% equity stake in Adevinta, providing a solid foundation for any take-private deal. Moreover, large existing shareholders like eBay and Schibsted are said to look favorably on a sale. Minority investors have clamored for an exit over the last year, and should similarly expect takeover negotiations to remain firmly on buyer-friendly terms.
