There can be no denying Fairfax’s $220 million sale of Stayz, announced at the close of Wednesday’s trade, is a solid result for the company. Acquired in 2004 for the modest sum of $6 million, Fairfax has managed to grow the business significantly, with the sale price representing an impressive compound annual growth rate of 49 per cent.
Stayz was a good contributor for Fairfax, delivering $13.1 million of earnings before interest, tax, depreciation and amortisation off total revenues of $25.4 million in fiscal 2013. However its growth had started to slow – revenue was up 10 per cent year-on-year but EBITDA was steady in comparison to fiscal 2012.
The holiday rentals sector is currently undergoing significant change and competition – in particular the emergence of Airbnb.com (which has raised north of $US300 million, or $331.4 million) and other well-heeled international competitors – and the company found itself in a more competitive environment than in previous years. The global resources of new owner HomeAway should assist Stayz in this area.
The $220 million sale price represents a $214 million gain for Fairfax, at a very commendable 16.8 times multiple. The two key questions as a result are: what will the company use these funds for; and what does the sale of Stayz mean for the future of the shrinking Digital Transactions group within the company?
Beginning with the latter, the sale of Stayz takes a large chunk out of the revenue and earnings of the Digital Transactions group. Stayz represented approximately one third of the group’s revenue of $75.8 million and EBITDA of $31.3. The Digital Transactions group includes Stayz, InvestSmart (which Fairfax sold back in August for $7 million), RSVP, Online Marketing Group, Tenderlink, Australian Property Monitors and Commerce Australia.
Online dating site RSVP, while operating in a different market to Stayz, confronts very similar operating challenges. Like Stayz, it has previously contributed strongly to Fairfax’s overall business and has managed to build market share in a competitive – but not hyper-competitive – market. But that environment is changing as overseas entrants such as e-harmony spend up big to effectively buy market share, knowing the dating market is heavily reliant on expensive, above-the-line advertising and marketing to compel customers into action.
Overall, the Digital Transactions business unit saw EBITDA drop 9 per cent in the last financial year and RSVP more than likely would have played a large role in this. Fairfax and its advisors must be looking seriously at whether they can find an acquirer for RSVP given its best days are most likely behind it.
The Domain business unit represents a more comfortable home for Australian Property Monitors and Commerce Australia. But given Fairfax’s recent strategic moves into content and events, Online Marketing Group and Tenderlink don’t appear to offer any real long-term strategic benefit to the wider organisation’s purpose. Nevertheless they are established, solid assets that would be of interest to competitors focusing in on these specific areas.
Fairfax Chief Executive Officer Greg Hywood must be wondering what value could be fetched for the sale of RSVP, Tenderlink and Online Marketing Group and how these funds could be used to best deliver on his strategic goal of “building, and profitability monetising (its) large-scale and highly engaged news media audiences in Australia and New Zealand”. RSVP in particular would be an attractive acquisition prospect for an international dating company looking to quickly scale in Australia (such as a match.com) because of its large user-base and customer data, as well as for a current competitor such as e-harmony to that’s looking to take a dominant position.
Then there’s the question of what Fairfax will do with the gain from the Stayz sale. One would feel it is likely the funds will be used to fuel expansion across the Domain business (which is building nicely for Fairfax), as well as fund the development of the nascent, yet highly publicised, content and events units. After paying down more than $1.25 billion in debt over the past two years it would be unlikely that the funds will simply be used to pay down liabilities. It is far more important, long term, to find key contributors to the Fairfax of the future.
Strategically the sale of Stayz appears to be a sound one for Fairfax, and likely indicative of future moves.