Started exclusive sale of eBay Korea… Gmarket, auction owner changes

▶Market Insight January 5th 4:40pm

The sale of eBay Korea, a domestic e-commerce platform, is in full swing. The rumors of the sale at the beginning of last year were finally realized. As the ransom price reaches a maximum of 5 trillion won, if the sale is successful, the domestic e-commerce industry is expected to change significantly.

◆Failure to take the lead in e-commerce chicken games

According to the investment banking (IB) industry on the 5th, eBay, the headquarters of eBay Korea, co-appointed Goldman Sachs and Morgan Stanley as sales supervisors at the end of last year to sell a Korean subsidiary. It is known that the seller is conducting pre-marketing work for potential acquisition candidates, such as large domestic distribution companies and large domestic and overseas private equity funds (PEF).

The sale of eBay Korea was already announced. In order to sell eBay Korea since 2018, eBay in the US has been trying to acquire eBay Korea under the water with large domestic distribution companies. There was no actual discussion due to the difference in price. It was reported in the press, but eBay Korea denied it. However, in the market, the sale was a matter of timing. The US eBay was attacked by the activist hedge fund Elliott Management and others to sell various business units in order to restructure the business. EBay Korea was once the largest e-commerce platform in Korea with a market share of over 70%, but its growth continued to slow due to the emergence of competitors such as Coupang and Timon.

EBay Korea, which entered the domestic market in 2000, currently operates Gmarket, Auction, and G9. Gmarket and Auction are the first and second largest open markets. These are operated by selling small shopping malls with a fee. The business model is different from Coupang, Timon, and WeMef, which have their own distribution network and mainly purchase and sell products. EBay Korea went on a downtrend after peaking at the operating margin of 20% in 2010. While Coupang and Timon set up logistics centers, bleeding competition through full investments and expanding their market share, eBay Korea focused on profitability.

It is also fatal for eBay Korea that Naver has significantly strengthened the shopping sector in a manner similar to the open market business model. As Naver provided the convenience of the Naver Pay payment system while maintaining the consignment sales fee to the lowest level in the industry, small business owners also entered Naver Smart Store. EBay Korea is also struggling with the release of Smile Cards, but it is evaluated that there is a limit to catching up as market competition has already formed around Coupang and Naver. Naver’s transaction amount exceeded 20 trillion won in 2019 and is estimated to have exceeded 30 trillion won last year.

It is also revealed in eBay Korea’s performance. Sales are increasing every year, but operating profit is stagnating. While the domestic e-commerce market growth rate reaches an average of 20% every year, eBay Korea is unfortunate. In 2017, sales were 951.8 billion won, but last year it recorded 1.615 trillion won, a slight increase. During the same period, operating profit decreased from 62.3 billion won to 61.5 billion won. In the aftermath of the novel coronavirus infection (Corona 19) last year, all e-commerce companies faced a boom, but eBay Korea was relatively ineffective.

◆The only surplus company… Ransom is the biggest issue

EBay Korea is the only e-commerce company that is making a surplus, and there are many evaluations that its acquisition attractiveness is sufficient compared to other industries such as manufacturing and finance. If Lotte and Shinsegae acquire eBay Korea, they can quickly emerge as the No. 1 company in the e-commerce market. Lotte and Shinsegae already operate their own e-commerce platforms, Lotte On and SSG.com. It is an open market model similar to eBay Korea. Both platforms recorded the highest performance this year in the aftermath of the coronavirus, but the industry is evaluating that there are still limits to dominating the market. In the case of Hyundai Department Store Group, it has been actively taking steps in the M&A market since last year, so it is mentioned as a candidate.

In terms of funding power, PEF has the upper hand. Large PEFs at home and abroad secured live ammunition by creating large-scale funds last year, but took a wait and seeing tax in the aftermath of the coronavirus. Considering that PEFs normally use up their funds within two years of fund creation, it is highly likely to jump into the acquisition of trillion units this year. PEFs that acquired or invested in distribution-related companies include MBK Partners that acquired Homeplus, Affinity Equity Partners that invested in SSG.com, Colberg Kravis Roberts (KKR) that invested in Tmon, and Anchor Equity Partners. In addition to these, there is a possibility that global PEFs will join hands with large distribution companies and jump into the acquisition.

The biggest issue is the ransom. It is known that the seller is asking for at least 5 trillion won. Considering that the e-commerce company’s corporate valuation is based on the transaction amount, it is about 0.3 times applied to eBay Korea’s annual transaction amount of about KRW 17 trillion last year. However, the industry estimates that 2~3 trillion won is appropriate. As the business model is different from Coupang and Timon, it cannot be compared with similar transaction multiples. In the case of eBay Korea, the growth rate has faltered, so management premium prices will not be high. In addition, although the industry is slightly different, Yogiyo, the second largest delivery platform in Korea, which is worth 2 trillion won, is expected to have a significant impact on eBay Korea transactions as the sale is expected to begin soon.

An official from the IB industry said, “EBay Korea is somewhat inferior in terms of competitiveness because Coupang has already dominated the e-commerce market by changing to a business model that parallels open markets.” If this is appropriate, the sale will be made.”

Reporter Kim Chae-yeon [email protected]