The SEEK Limited (ASX: SEK) share price is up 1.5% today after the global jobs and recruitment business informed investors that its fast-growing Chinese jobs website Zhaopin will be privatised in a deal with two Chinese private equity investment groups.
The agreement will see the private equity groups pay $US18.20 per share for the outstanding Zhaopin scrip traded on the NYSE, although the deal is subject to the approval of existing Zhaopin shareholders some of whom have previously insisted that the previous US$18 per ADS offer undervalues the Zhaopin business.
Still the Zhaopin board of directors are reported to be in favour of the proposal and recommending to shareholders to vote in favour, with the offer representing a 14.2% premium over the February 16 2017 closing price of US$15.94 per Zhaopin share. An offer of US$18 per share was also said by PM Capital Asia to represent just 18x Zhaopin's trailing earnings, which looks a pretty cheap price for a Zhaopin asset boasting revenue and profit growth consistently above 20%.
Therefore, if the deal does go through it will be a good one for the Chinese private equity groups who are gaining part ownership of a red-hot asset for a relatively modest price premium. It would probably also be good news for SEEK shareholders as Zhaopin would effectively acquire Chinese backers who specialise in growing assets over the long term to reward investors.
Zhaopin is now the most popular career website in China and posted constant currency revenue and EBITDA growth of 23% and 20% for the six-month period ending December 31 2016. For Zhaopin in H1 FY17 SEEK's share of EBITDA was $41.8 million out of group EBITDA of $183.8 million and it's possible that in the future Zhaopin goes on to be a bigger business than SEEK's core Australian business.
SEEK already earns more than half of group EBITDA across all its international businesses, although its Australian business has been the star performer in recent times. Overall it looks a good investment prospect with multiple long-term growth levers to be pulled by its founder-led management team.
Unfortunately, the stock does not come cheap at $16.19 on around 32x analysts' estimates for 51 cents in reported earnings per share for FY17. Given SEEK has provided profit guidance these estimates are likely to be reasonably accurate, although the multiple does fall considerably if you accept SEEK's practice of excluding early stage investment costs from its bottom line numbers.
SEEK also faces competitive threats from the likes of LinkedIn Corp and Indeed although I still expect it has a good chance of growing profits at reasonable rates long into the future.
Others to consider in the digital space include REA Group Limited (ASX: REA), Carsales.com Ltd (ASX: CAR) or even junior jobs marketplace rival Freelancer Ltd (ASX: FLN).
