Kogan extends into NZ by buying Mighty Ape

Kogan.com expands into New Zealand with the $122.4m purchase of online retailer Mighty Ape, adding almost 900,000 subscribers.

Ruslan Kogan is expanding into New Zealand. Picture: Hollie Adams

Kogan.com has agreed to pay $122.4 million for New Zealand online store Mighty Ape, with the entire deal negotiated and completed without any in-person meetings between the executives on both sides of the transaction due to the lockdowns and closed international borders.

A quirk of the COVID-19 global health pandemic which has kept people working from home and international travel almost completely halted meant Kogan.com chief executive Ruslan Kogan and chief financial officer David Shafer were unable to travel to New Zealand to meet with Mighty Ape’s owners and ‘kick the tyres’ of the business in person.

But this same restriction on travel has also seen a huge shift on both sides of the Tasman to online shopping and digital platforms which has proved boomtime conditions for online retailers such as Kogan.com and Mighty Ape, bolstering the sales and profits of both companies.

Mighty Ape is one of New Zealand’s leading online retailers, with a focus on gaming, toys and other entertainment categories.

Kogan.com said on Thursday the combination of two market leaders would enable Mighty Ape to build on its strong customer offering, and provide the infrastructure to further scale.

Mighty Ape is forecast 2021 revenue of $137.7m, gross profit of $45.7m and EBITDA of $14.3m. The Mighty Ape online business has more than 690,000 unique customers, and more than 895,000 subscribers. The purchase price of $122.4 million is payable over four tranches and subject to variation under earn out through to delivery of 2023 financial results.

Mighty Ape founder, Simon Barton, will remain at the business and have short term incentives through to 2023.

Kogan.com executives, including its CEO and CFO, are yet to actually meet Mr Barton with the whole acquisition done over online video sessions on platforms such as zoom.

“We spent a lot of time getting to know the (Mighty Ape) team through virtual conferencing,” Mr Shafer told The Australian.

“So plenty of google meet sessions and zoom meetings, and interviews and discussions over an extended period of time. But this is a business we have been tracking for a very long time, Simon Barton and his team have built an iconic retailer in New Zealand over more than a decade.”

“We are pleased to be bringing the iconic Mighty Ape into the Kogan Group, and are delighted to be welcoming Simon Barton and his team,” said Kogan.com founder and chief executive Mr Kogan.

“We are a natural home for Mighty Ape, given similar histories and shared values — most importantly our obsession with delighting customers, and continually improving the online shopping experience. Mighty Ape has more than a decade of experience and track record of delighting Kiwi customers, and has become one of New Zealand’s most trusted brands.”

Mr Kogan said Mighty Ape will give Kogan.com significant scale in New Zealand and further strength across a variety of operational dimensions.

“We will be drawing on Mighty Ape’s deep experience in gaming, toys, other entertainment product categories and the New Zealand market, and combining this experience with Kogan.com’s sourcing, technology, systems, infrastructure, and marketplace capabilities, to further enhance the group’s already market-leading offering across the Tasman.”

Mighty Ape has significant operations in New Zealand, employing 161 staff, as well as operating a purpose-built distribution centre near Auckland. The facility allows Mighty Ape to deliver its shipping capability across New Zealand with same day delivery to Auckland, Hamilton, Wellington and Christchurch, as well as servicing the Australian market.

Kogan.com said that based on unaudited management accounts for the last twelve months to September 2020, Mighty Ape generated revenue of $120.1 million, gross profit of $37.8 million and EBITDA of $9.9m.

The achievement of the forecast 2021 results by Mighty Ape will represent year on year growth in revenue, gross profit and EBITDA of 43.7 per cent, 58.1 per cent and 254.1 per cent, respectively.

Kogan.com has done a number of acquisitions in recent years. This year it paid $4.4m for the online business of furniture and homewares store Matt Blatt and in 2016 paid just under $3m for the online database of failed consumer electronics business Dick Smith.

Shares in Kogan.com have performed strongly through the COVID-19 pandemic as consumers pivot to online shopping, with its stock gaining more than 400 per cent to hit as high as over $25 from only around $4 before the pandemic hit.