CoStar founder and boss Andrew Florance is understood to have been in Australia late in 2024 as part of his quest to gain control of Domain Group, sources say.
DataRoom understands that he met top industry experts to canvass their views on Domain Group just months after speculation started to emerge that the market’s No.2 online real estate player could be on CoStar’s radar.
Domain, which is 60 per cent owned by Nine Entertainment, confirmed on Friday that it had received a buyout proposal from the US online real estate group to acquire the business for $4.20 a share, which equates to about $2.65bn, and was assessing the offer. It left the company scrambling to find an adviser and on the back foot at a time Nine and Domain Group are both without permanent chief executives.
Some market experts take the view that Domain – which is far behind the market’s No.1 player REA Group, majority-owned by The Australian’s publisher News Corp – requires the Nine stable of media brands for promotion and marketing.
But DataRoom understands that Mr Florance, known to be a friend of former federal treasurer Joe Hockey, is a big spender when it comes to marketing.
Mr Florance is taking the position that he can grow Domain and boost its market share without Nine’s help, hence his decision to put forward a clean bid for all of the group.
Nine’s shareholders spoken to by DataRoom said it was a good price. Nine should provide due diligence to the suitor, then try to negotiate for slightly more behind closed doors. CoStar could perhaps sweeten the deal by providing shareholders a cash and scrip option.
Nine’s board, which included recent hires such as former Morrison government adviser Tim Longstaff and ex-News Corp lieutenant Peter Tonagh, want close to $4.50 a share, sources say, higher than the offer that is a 34 per cent premium to its last traded share price.
CoStar has a reputation as a tyre kicker, but since it has raided Domain’s share register it appears to be serious in this instance.
Now the debate turns to what Nine would do with the money, with bets on that a deal gets done.
Most say the latest situation puts oOh! Media back in focus, which Nine has previously considered buying. Trading at $1.30 a share or $697m overall down from $4.16 before the pandemic, the outdoor advertiser is considered a good buy in a media market now at the bottom of the economic cycle.
Former Nine boss Mike Sneesby considered a move into outdoor advertising in recent years with an acquisition of oOh! Media or QMS. It would consolidate the media market and solve Nine’s problem of having its revenue weighted too much towards free-to-air-television, which creates a drag on its share price because of its volatile earnings and the trend for consumers to prefer on demand and streaming content.
Another logical move for Nine would be into radio, with ARN Media a possible option, although rivals News Corp and Seven West Media are major shareholders.
Without Domain Group, Nine’s market value shrinks to about $1bn from $2.37bn.
As well as mergers and acquisitions, it can pay down some debt and offer shareholders a special dividend. The risk is that the stock re-rates to being a traditional media company and the premium baked in for having an exposure to a digital media company disappears once Domain is gone.
In the case of Nine’s competitor News Corp, the success of REA Group accounts for about 75 per cent of its own share price.
Domain Group’s share price was $3.98 when it was spun out of Fairfax Media before Fairfax was purchased by Nine and its performance has since deteriorated.
Sources say Mr Florance is of the view that the right strategy for Domain is a move into other portals related to real estate, where its revenue growth is not simply based on more listings.
It’s a similar strategy to that of Domain Group founder Antony Catalano, who now controls the market’s third largest player, View Media Group.
The attraction for Mr Florance is the margins achieved even by the No.2 player in the Australian market, with Domain’s margin at about 35.8 per cent versus REA’s 70-plus margins.
Nasdaq-listed CoStar is cashed up, with about $US5bn on its balance sheet and a $US32bn market value, so it has plenty of money to throw at Domain.
While CoStar is a powerhouse in advertising online for commercial property, being the world leader in that field, building up the residential side of the business has not been such an easy path, where it has tried to grow through owning No.2 players in global markets.
It has been on a global acquisition spree in recent years, buying in 2023 OnTheMarket, the third largest UK player, but is up against the powerful market incumbent Rightmove, which REA Group tried to acquire last year.
REA Group’s share price fell on Friday by more than 11 per cent, with the market betting that with CoStar’s aggressive move into Australia it will need to spend more on marketing to protect its No.1 position.
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