Purplebricks has bought its entry into the Canadian market at a “steal” of a price.
Proptech analyst Mike DelPrete says he played a small but important part in the deal by which Purplebricks acquired DuProprio/ComFree for £29.3m.
DelPrete described the Canadian online firm as “one of the most successful real estate companies no one has ever heard of”.
It lists over 40,000 properties a year, generates over $40m in revenues and has over 20% market share in Quebec.
The acquisition means that from a revenue point of view, Canada immediately becomes Purplebricks’ second largest market after the UK.
DelPrete says that the UK contributes 67% of Purplebricks’ revenue, Canada 20%, Australia 11% and the US 2%.
He points out that Purplebricks has an ‘enterprise value’ of £978m. That works out to 10.4 times its revenues of £93.7m.
By contrast, it has paid £29.3m for DuProprio, which is just 1.3 times its revenues of £23m.
So why was DuProprio valued so low?
It was bought in 2015 by Canadian Yellow Pages for $50m, and sold for a profit of just $1m.
There is just one clue, says DelPrete – the company seems to need the money.
According to Canadian Yellow Pages CEO David Eckert: “As we continue to streamline and focus our operations, we believe the divestiture of [DuProprio/ComFree] is another very positive step for Yellow Pages and our stakeholders.
“Under the terms of our senior secured notes, the cash proceeds will be included in the next scheduled note redemption payment on November 30, 2018.”
With its Canadian purchase, Purplebricks will not have to spend anything like the money it has ploughed into the US and Australia.
In the US, over eight months, it has spent almost £18m to generate £2m revenue. In Australia over 20 months, it has spent £26m to achieve revenues of £17m.
By comparison Purplebricks has spent £29.3m in Canada for revenues of £23m – and it took just a day.
Comments (6)
The figure is claiming that is the enterprise value…some would say real value. But the calculation is over simplified…and this is how some get into difficulties when their bargain isn’t as much of a bargain as first calculated. The true way to calculate Ev (enterprise value) is market value of common stock + market value of preferred equity + market value of debt + minority interest – cash and investments.
10.4 x Revenue?
If that was a true way to value a business, i expect many of us would already have sold up. Feel free to buy my outfit for just 10 x Revenue. Get yourself a bargain 😉
I don’t undercut as a rule, quite the opposite, however in this case I would be willing to consider offers at just 9.8 x revenue. Now that’s a real bargain, believe me!
That is probably the correct ball park figure, PB 10.4 times is crazy. If it was so cheap why did someone else not buy it? Canadians are not dumb.
Still failing to grasp the difference between revenue and profit it would seem.
However on paper it looks very good if you accept PB is really worth 10.4 x revenues
It does seem Bricks have got a bargain !!! but the Canadian Housing Market has hit the buffers and likely that revenues are under threat .
According to recent data from Royal Bank of Canada, home ownership costs in Canada are now the highest they have been in nearly three decades. To finance this, Canadians have run up a near-record level of household debt, around $1.70 of debt for every dollar of disposable income, one of the highest consumer debt levels in the developed world.