The Domain Holdings Australia Ltd (ASX: DHG) share price is one to watch after it announced an acquisition.
Domain acquires Insight Data Solutions
Domain announced that it will acquire property data business Insight Data Solutions (IDS). The agreed price is based on IDS’ performance until June 2027 and will be a maximum payable of $159 million.
Management expects the acquisition to be completed in October 2021 with an initial payment of $60 million.
The IDS founders will remain with the business after the acquisition.
What does Insight Data Solutions do?
IDS was established in 2013 and is a property data business which focuses on servicing government and corporate industries.
Its platform is used by organisations like the office of the Valuer General who is responsible for statutory valuation processes. Local government authorities (LGAs) levy rates based off of these valuations.
Approximately 28% of the nation’s government statutory valuation volume uses IDS services.
Looking at the IDS corporate customer base, it has a valuation model product that is used by smaller lenders, fintechs and mortgage brokers.
Growth strategy
Domain said that it is “on a journey to expand its addressable market beyond agents and consumers”. Management wants to expand to providing services to financial institutions and governments. The acquisition of IDS is a step in this growth strategy.
The company said that having IDS under the Domain umbrella will establish Domain as a market leading provider of land and property valuation, with insights and analytics services for the government sector.
Domain expects this will significantly expand the size of the property data solutions segment of its marketplace strategy.
Final thoughts on the Domain share price
This sounds like a good move to diversify into more services required in the property world. The acquisition hasn’t had an impact on the share price, with it sitting virtually flat currently.
Being a business that purely focuses on the advertising of residential property could be problematic if/when the property market steps into a downward trending point in the cycle.
Both Domain and REA Group Limited (ASX: REA) have benefited strongly from the recent boom in the housing market. The Domain share price is up a huge 41% in the past year.
Using strong profits in the boom times to diversify and strengthen the business to better weather lesser points in the property cycle is a logical and sensible move.
However I’m not sure if I would be buying Domain at today’s price with all of the current hype around the property market and low interest rates which is surely rubbing off onto Domain’s current valuation.
