November 26, 2009

I was interested in this, from the recent NZ Herald profile of David Kirk:

Kirk was personally responsible for its decision to fork out a whopping $700 million for online auction site Trade Me – a sum that initially bewildered analysts on both sides of the Tasman.

The deal was announced the same week Rupert Murdoch bought MySpace, and Kirk is quick to note he isn’t the one who is now experiencing buyer’s remorse.

Trade Me contributes around $85 million a year to Fairfax’s coffers, whereas MySpace, which has absorbed many more millions, has yet to make a profit.

Fairfax paid NZ$750 million for Trade Me (there was a further $50 million of earn-out payments on top of the $700 million paid up-front).

News Corp paid US$580 million for MySpace or about NZ$860 using the exchange rate at the time of the acquisition in 2005.

By just about any measure Fairfax would have to be happy with their purchase.

Perhaps analysts in Australia were “bewildered” when they heard the announcement, but this was probably more likely because they had never heard of Trade Me than anything to do with the price, once they saw the revenues.

$750 million is actually not a “whopping” amount to pay for a business that generates $85 million of cash, just three years later, and continues to be in a strong position.

What do you think?