Japan’s LIFULL Co. Ltd (TSE: 2020) has made an AUD 187 million offer to acquire 100 percent of the Mitula Group (ASX: MUA) and in the process, merge it with Trovit to create a leading global online classified business. The combined operations of Mitula and Trovit will cover vertical search, SE Asian property portals and emerging transaction-based businesses.
This deal effectively continues the consolidation of the vertical search industry that three years ago had Mitula, Trovit, Nestoria, and Nuroa as separate players and, at the same time, is a win-win-win for all players involved in the deal.
The Combined Mitula and Trovit Business
Mitula and Trovit come from similar backgrounds. They were both founded in Spain – one in Madrid and one in Barcelona. Trovit is slightly older being founded in 2006 while Mitula was founded in 2009.
They both started in a similar way. They worked with property portals and general classifieds sites to aggregate listings and then using a combination of SEO, search engine marketing and general marketing, they attracted visitors and then drove leads back to the owners of the listings. Both Mitula and Trovit monetized this approach by leveraging Google AdSense and by selling clicks back to the advertisers for a fraction of what Google charged in AdWords.
As they gained scale, the companies took slightly different paths. Trovit continued to chase more and more traffic and optimized its systems and processes to capture greater value from sale of clicks to advertising partners. Mitula decided on a “Closer to the Transaction” strategy that focused on how to extract greater value from the existing visitors rather than just on growing traffic to drive greater revenues.
For Mitula, this lead to the acquisition of DotProperty and Fashiola as well as the building out of advertising products and services on its vertical search sites to provide a wide range of advertising options to a broader customer base.
By bringing these two businesses together, there is a chance to get the best of both worlds.
In short, the merger of these two businesses brings scale and with scale come opportunities. The combined business starts with operations covering 63 countries, 400 million listings and 170 million visits per month.
A Win for Mitula Group Shareholders
The Mitula Group was floated on the Australian Stock Exchange under the “MUA” code in July 2015 at AUD 0.75 per share or a market capitalization of AUD 165 million.
Since listing, the company has delivered strong financial and operational metric growth with revenue and EBITDA almost doubling, and quarterly visits increasing from 147 million to 223 million.
This growth was driven by its “Closer to the Transaction” strategy whereby management looked at how it could capture more value from existing visits rather than just relying on increasing the number of visits to drive revenue growth.
However, the share price has not reflected the strong overall performance of the business. The share price had steady growth until a revenue and profit downgrade in August 2017 led to its halving. Since then, the shares have regularly traded in the AUD 0.40 to AUD 0.50 range, even with the strong start to the 2018 year and with the company reporting record revenue and traffic months in March and then April.
Therefore, the offer by LIFULL of approximately AUD 0.85 per share was a significant premium and one that the Board felt compelled to recommend that all shareholders accept.
Value Creation for LIFULL
LIFULL was established in 1997 by Founder and CEO, Takashi Inoue and is now a leading player in the Japanese property portal industry. The company’s main business is the homes.co.jp property portal that has over 6 million listings. For the 12 months to 30 September 2017, LIFULL had revenue of AUD 390 million and an EBITDA of AUD 48 million, and at 8 May 2018, a market capitalization of AUD 1.35 billion.
In 2014, the company commenced an overseas growth strategy and, as part of this, acquired Trovit for EURO 80 million (AUD 125 million). This acquisition immediately gave LIFULL a strong position in vertical search and a platform to expand its operations internationally.
Based on historic results, the acquisition of the Mitula Group strengthens LIFULL’s financials by increasing revenue by 7.9 percent, and EBITDA by 18.4 percent2. In addition, the international (non-Japanese) businesses will now generate 17.4 percent2 of LIFULL’s revenues, up from 10.5 percent2 prior to the acquisition.
Simon Baker is the Founder of Property Portal Watch/Global Online Classifieds and the Chairman of the Mitula Group.
 147 m visits for 3 months to June 30, 2015 and 223 m visits for 3 months to March 31, 2018
 Source: LIFULL market announcement 9 May 2018