The Carsales.com Ltd (ASX: CAR) share price has been halted after the company announced an acquisition.
Carsales is the owner of Carsales.com.au. But, it also has exposure to other markets including the US, South Korea and Latin America. It’s not only involved in car sales, but also motorcycles, caravans, boats, trucks and equipment.
Carsales’ Brazilian expansion
The ASX tech share announced that it’s going to buy another 40% of the number one Brazilian automotive digital marketplace Webmotors. After this is completed, Carsales will then own 70% of the business.
Carsales is going to spend approximately A$353 million on this deal, while Santander will retain a 30% stake in the business.
The ASX share explained that Webmotors and Santander will continue their “valuable contractual relationship.”
Carsales also noted that Santander will “retain its commercial exclusivity in that it continues to be the credit and financial solutions partner for finance and insurance transactions made through the Webmotors platform.”
Using the EBITDA (EBITDA explained) for the 12 months to December 2022, this values the business at 21.7x EBITDA.
What is the benefit?
Carsales said that the expectation is that is its increased ownership will “allow Webmotors to benefit further from Carsales’ expertise in digital marketing, customer experience, products, and services within the digital automotive ecosystem.”
The move will enable the company to strengthen its market share while retaining the support of Santander, the leading auto loans business in Brazil. The aim is that the move will improve the offering for dealerships, franchises, original equipment manufacturers (OEMs) and consumers.
Management commentary
The chief financial officer of Santander Brasil, Angel Santodomingo said:
We believe that the new format of the agreement will allow us to further expand the volume of car financing made through the portal and to access technological innovation that will certainly result from this partnership.
At the same time, it further boosts the development of Webmotors due to its proximity to a company that is the best international partner we could have in this segment.
Capital raising
Carsales said it would do a $500 million capital raising, with a 1 for 14 pro-rata accelerated renounceable entitlement offer, with retail rights trading.
Final thoughts
The Carsales share price has held up well despite all of the negativity surrounding higher interest rates. This seems like a pricey purchase to make, but management must believe that the company can extract far more value out of the deal than what was paid.
Brazil is a huge country with a big population that could see a large increase in the amount of digital users. Webmotors is growing revenue and EBITDA at a double-digit rate over the longer-term.
