Britain’s Apax wins over Trade Me

British private equity firm Apax Partners has won over Trade Me's board, lifting its offer to match rival Hellman & Friedman's $2.56 billion. 

New Zealand's dominant online marketplace has agreed to a scheme of arrangement with Apax for the British firm to pay $6.45 a share. Trade Me's board will unanimously back the deal, provided it's within an independent valuation range, but it also left the door open to consider a better offer if one unexpectedly emerges. 

"We’re confident Trade Me would have a successful stand-alone future, but we believe the certainty of the cash offer and material premium would be an attractive outcome," Trade Me chair David Kirk said. 

"It merits being put to shareholders with our recommendation, in the absence of a superior proposal."  

Apax initially lobbed in a $6.40 per share offer - a 26 percent premium to the trading price at the time - but was trumped a fortnight later by Hellman & Friedman who dangled $6.45. Trade Me granted both parties access to its books to undertake due diligence in an effort to get the best price. 

The shares last traded at $6.12, having climbed from $2.70 since their initial public offering in 2011. That 126 percent gain is roughly in line with the 120 percent increase in the NZX 50 index over the same period. 

The takeover price would be 16.7 times Trade Me's 2018 underlying earnings. When Trade Me was floated in its 2011 initial public offering, the $1.08 billion valuation was at a multiple of 15.6 times. Fairfax Media's $700 million acquisition in 2006 was at an earnings multiple of 15.6 times.

A scheme of arrangement has a lower bar to get shareholders over the line, requiring 75 percent support and at least half the company's votes cast, as opposed to the 90 percent threshold needed in a formal takeover to enforce mop-up provisions. The High Court and the Overseas Investment Office will also need to approve the transaction. 

Trade Me's board said shareholders don't need to do anything yet.It expects a vote to be held in April. 

Apax makes long-term investments in technology, services, healthcare and consumer industries, targeting large firms valued at 1-5 billion euros. Its portfolio includes several e-commerce companies, including Israel-based Global-e Online and, a London-based predominantly online global luxury goods retailer, and Moda Operandi.

It plans to fund the acquisition through equity from its Apax managed funds and third-party debt. 

The average leverage among Apax companies at March 2017 was 4.5 times, meaning Trade Me could be saddled with about $738 million. The company's net debt was $64 million as at June 30, although that increased in September when Trade Me paid a special dividend funded through debt.

The deal grants Apax exclusivity, restricting Trade Me from seeking a rival bid. However, there are exclusions for the board to consider a better offer that comes out of the blue, provided Apax has a chance to counter. The scheme also sets out the conditions for a $19.2 million break fee to be paid. 

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