Aussies still spending big on cars, as Carsales makes blockbuster acquisition

Carsales.com chief executive Cameron McIntyre says buyers are yet to change their habits following the RBA’s tenth consecutive rate hike.

Brazil’s Webmotors chief executive Eduardo Jurcevic with Carsales chief executive Cameron McIntyre, right, after the pair announced a $353m deal.

Aggressive interest rate rises are failing to dent demand among car buyers, the boss of Carsales.com says, as the company raises $500m to buy a controlling stake in Brazil’s biggest auto classifieds site.

Carsales chief executive Cameron McIntyre said while prospective car buyers typically traded down to lower price brackets during economic slowdowns, the shift is yet to happen.

This is despite 10 successive interest rate hikes from the Reserve Bank since May last year and the US Federal Reserve saying it expects to deliver even more rises in an effort to limit spending and curb rampant inflation.

“We’re coming to pre-pandemic levels,” Mr McIntyre said about Carsales’s classified volumes.

“At the moment we are yet to observe any changes in trends.”

Carsales will spend $353m on lifting its stake in Brazilian auto classifieds site, Webmotors, from 40 to 70 per cent. It will complete a $500m capital raising to fund the deal as well as cut its debt.

Carsales initially invested in Webmotors a decade ago and Mr McIntyre said he had been seeking to secure a controlling stake in the company for the past seven years, saying it had “attractive counter cyclical qualities”.

Since 2017, Webmotors has delivered compound annual revenue growth of 23 per cent, while earnings before interest, tax, depreciation and amortisation has risen 28 per cent.

It extends Carsales’ dominance of the auto classified industry to Brazil, which has almost 80 million registered cars.

“The automotive market in Brazil is a competitive market just like it is here in Australia and there‘s many auto manufacturers trying to sell cars. We’ve got a significant opportunity to increase our media revenue,” Mr McIntyre said.

“Consumers (in Brazil) are evolving into digital transactions, just like we are here. And so as the market matures, over time, it presents more opportunity for us to deploy our IP and technology into that market.”

The acquisition cements Carsales’s strategy of taking minority stakes in companies before securing majority ownership.

It has completed similar deals in South Korea and the US.

Mr McIntyre said test driving investments had been crucial to Carsales’s success.

“It‘s been really important to us because as a business we’ve always thought that it’s better to take a minority stake in a market that we don’t understand and learn the market.

“(The strategy allows us to) become familiar with it, look at where the opportunities are to create value for our shareholders, and then as we get comfortable building strong relationships with our partners in those markets to then evolve into a position of control.

“That‘s worked very well for us in South Korea, in the US and now in Brazil. Sometimes it’s taken us a bit longer to get to control, like Brazil has, but other times we’ve been able to do it a bit quicker. But that’s been the strategy.”

The deal is expected to be earnings per share neutral in the first full year after completion and accretive thereafter. The acquisition price represents an earnings multiple of 21.7 times EBITDA.

Mr McIntyre said he did not expect a higher interest rate environment – with the RBA not forecasting to return inflation to its target until mid-2025 – to dent demand for cars.

“In a market where interest rates might be going up, where consumers might be looking for more cash flow, what you tend to see is consumers selling their cars, but they‘ll still be buying cars because they still need to commute.

“So for instance, a consumer that might own a $40,000 car and might want to release $10,000 of equity. And so they‘ll sell that $40,000 car but they’ll still buy a $20,000 or $30,000 car.

“If conditions become more challenging, manufacturers want to make sure that consumers are seeing their product in market. So for a business like ours, we provide the audience for them to achieve that outcome as well.”

The capital raising will allow Carsales to reduce its leverage to 1.9 times, which Mr McIntyre said would give it capacity to pursue more growth opportunities.

“We‘re looking for market opportunities where we could potentially acquire a number one player in that market because with some of these marketplace businesses or industries, in particular countries, it’s a bit of a winner take all.

“So we‘re looking for opportunities to deploy our virtual property and our world class technology into those markets as well to help them grow and evolve and mature as quickly as we possibly can.”

Under the capital raising, shareholders will be able to receive one new Carsales share for every 14.01 held. Shares will be sold at $19.95 each, a 10.8 per cent discount to the dividend-adjusted last closing price of $22.36.

Webmotors has about 430,000 dealer and private advertisement listings, 17,000 subscribed dealer customers, and generates more than 320 million annual website visits, providing more than 16 million leads to car sellers.