REA Group Limited (ASX: REA) announced after the market closed on Tuesday that it has entered into an agreement that it will acquire 100% of Hometrack Australia Pty Ltd, as long as the Australian Competition and Consumer Commission (ACCC) approves the deal.
Hometrack Australia is a residential property data company, it provides data to the financial sector. REA Group has a suite of products including property data analytics and insights, customised data platforms and an automated valuation model.
REA Group said that the purchase will cost $130 million and it will be funded from existing cash reserves and debt of $70 million.
The Hometrack Australia management team will continue under the leadership of Brendan Darcy and it will maintain its current structure and brand. Hometrack Australia is forecast to generate revenue of between $13 million to $15 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of between $6 million to $7 million.
REA Group expects cost synergies to be achieved once Hometrack Australia is part of the REA business.
The CEO of REA Group, Tracey Fellows, said “It’s an exciting move for our business and a natural extension for realestate.com.au. The acquisition allows us to deliver more property data and insights to our customers and consumers.”
The actual business seems like a good fit for REA Group, but the purchase price of $130 million for $7 million of EBITDA seems like a very high multiple to pay. Either management are very confident of synergies and growth, or it is just a high price. Hopefully it doesn’t turn out like its investment of iProperty where it had to write-down some of the value.
REA Group is currently trading at 38x FY18’s estimated earnings, it’s a high quality business but I wouldn’t want to buy shares at the current price – it’s just too expensive for me.
I’d much rather buy shares of these top businesses that are trading at much better value.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.