Deals accelerate in German online marketplaces

Oscar Geen
01 March 2018

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Private equity firms are finding value in German online marketplace operators in 2018, as four high profile transactions close in the first two months of the year. Oscar Geen reports

Three German companies with a combined enterprise value of €8.6bn were subject to private equity firms investing more than €500m and cashing out more than €700m in the first two months of 2018. All three were online marketplaces and two of them are primarily intended for the trading of automobiles.

Softbank's $100bn Vision Fund took a 20% stake in German online car trader Auto1 in mid-January, investing €460m at a €2.9bn valuation, allowing several early-stage VC backers to cash out. Meanwhile, Hellman & Friedman made its final exit from Scout24, a digital marketplace for cars and real estate, selling a €340m stake at a €3.9bn market cap. Finally, General Atlantic acquired a 25% stake in ProSiebenSat.1's Nucom Group, an assortment of lifestyle brands and trading platforms, at a valuation of €1.8bn.

Online marketplaces have national business models, and we often look for those with strong competitive positions in the home market segment" – Jörn Nikolay, General Atlantic

A fourth smaller but related transaction was Hg's acquisition of MeinAuto, another online car marketplace that records around 16 million visitors per year and connects with 9,000 dealers across the country. Hg was advised on the transaction by global TMT-focused corporate finance adviser Arma Partners.

Eric Lawson-Smith, partner and head of the media and internet practice at Arma, outlines three factors that make online marketplace businesses attractive to private equity investors: "The first factor is fragmentation of buyers and sellers. This increases the value of a single 'meeting place' in which e-commerce activity can take place. The second is an attractive margin opportunity in the value chain addressed by the e-marketplaces. Thirdly, and most importantly, private equity firms will look for attractive unit economics. The relationship between customer lifetime value and customer acquisition cost is a critical determinant in whether a marketplace can be sustainable and profitable over time."

Bordered transformation
These considerations would have been on the mind of General Atlantic's Jörn Nikolay when assessing Nucom, but he suggests that resonance with a national market is a further important factor. "Online marketplaces have national business models, and we often look for those with strong competitive positions in the home market segment," he tells Unquote. For such businesses to succeed, they need liquidity on both sides of the equation, with active suppliers and customers."

Arma's Lawson-Smith agrees with this and suggests an explanation for the sector's particularly active start to the year: "Strong economic fundamentals in the DACH region – Europe's largest economy and a market in which consumer migration online has lagged countries such as the UK but is now catching up – is driving the increased interest from private equity in German marketplaces."

Lawson-Smith's explanation for the interest in the automotive sector specifically is along similar lines: "The investment by Hg in MeinAuto reflects the significant opportunity for digital disruption in value chains that have, until now, been largely protected from the internet. Automotive distribution is undergoing profound change, not only for used vehicles, but also for new cars. A series of IPOs and investments including TrueCar, CarGurus and Carwow all reflect the massive opportunity that exists to overhaul the process of buying cars on both sides of the Atlantic."

However, the jury is out on whether multiple marketplaces, dealing in different products, can be successfully united under one brand. GA's Nikolay says: "Facilitating knowledge exchange is one of the main attractions of the portfolio structure. We see this as an opportunity to share the best in class attributes of each, allowing them to collectively grow and benefit from each of their successes."

However, Lawson-Smith is more cautious, saying: "Within defined verticals there is the possibility to aggregate services under a single brand. However, strong evidence exists that consumers still wish to deal directly with specialist platforms, good examples in DACH being MeinAuto in automotive and Chronext in luxury watches."