Woolworths compete with Amazon, Kogan, and Catch with a $250m MyDeal acquisition

Major supermarket operator Woolworths is hoping to contend with the likes of Kogan, Amazon, and Catch through a $250 million acquisition of fellow ASX-listed online marketplace MyDeal.

Notwithstanding, market investigators have scrutinized the move, summoning the organization’s previous failures with non-food businesses like Masters and EziBuy.

On Friday, Woolworths advised shareholders it had agreed to buy a majority 80% stake in MyDeal for $1.05 per share, a 63 percent premium on the organization’s last closing cost, with a total value of $243 million.

The move repeats a comparable one made by rival Wesfarmers in 2019, purchasing online marketplace Catch for $250 million. Be that as it may, the business has underperformed since notwithstanding widespread development in online retail during the pandemic, and examiners raised comparative worries about MyDeal.

“We can’t help but think if [MyDeal] didn’t make money through the COVID period, will it ever?”, Barrenjoey investigator Tom Kierath asked in a note to clients named ‘Why Deal?’. He featured the huge numerous paid by Woolworths for the business and the $5.8 million loss MyDeal announced a year ago.

Kierath additionally questioned if the buy was a wise use of capital for Woolworths, highlighting the organization’s historic failures to create returns in non-food businesses like Big W, Dick Smith, and failed hardware chain Masters.

Citi analyst Adrian Lemme likewise called out the deal’s similarity with past failures by Woolworths, drawing matches with the organization’s $350 million 2013 acquisition of online retailer EziBuy, which was in this manner got on paper and sold for a nominal sum in 2017.

“Both businesses are not market leaders and we are also concerned that visibility on MyDeal’s performance will be low once consolidated as EziBuy’s was previously,” he said.

Essentially, Morgans analyst Alex Lu said the transaction was “slightly curious” as it would build Woolworths’ exposure to general products during a period when shoppers are battling with quickly increasing cost of living pressures.

Regardless of the worries, Woolworths’ share cost rose 1.7 percent to $35.80 following the declaration. CEO Brad Banducci said the tie-up would supplement Woolworths’ more extensive ‘food and everyday needs’ ecosystem strategy and would be a specific advantage to the organization’s Big W department store, which as of now offers numerous comparative products to MyDeal.

“The addition of MyDeal to Woolworths Group represents a further step towards delivering a more holistic customer experience in the food and everyday needs and materially expands our marketplace capabilities, especially in general merchandise,” Banducci said.

MyDeal was listed on the ASX in October 2020 and works as an online marketplace that sells a range of consumer goods including furniture, electronics, pet goods, and kitchen appliances. Woolworths’ buy will see the organization contend with the likes of Kogan, Amazon, and Catch.

Under the game plan, MyDeal founder and CEO Sean Senvirtne will hold 20% of the business, however, Woolworths will hold the option to purchase those excess offers further down the track. The organization will likewise be de-listed from the ASX.

Senvirtne right now possesses simply under half of MyDeal and has supported the offered close by the organization’s board, meaning the deal will in all likelihood get shareholder approval, however, it will in any case require a tick from the competition regulator.

“The transaction is a highly attractive proposition for MyDeal shareholders and represents a significant premium to MyDeal’s share price,” he said.

“I am excited to retain a significant and continued interest in MyDeal and to lead the business through its next stage of growth to become Australia’s leading marketplace.”

MyDeal listed during the mid-COVID boom for online retailers, drifting with a share cost of $1 which rose to $1.71 shortly after listing, however immediately tumbled to trade well under its IPO cost. Senvirtne noticed that Woolworths’ offer would give investors who purchased in at the IPO a 5% premium.

MyDeal shares rose 55% to $1 on Friday.