Domain emerges as contender for Property Exchange Australia stake

Domain chief executive Jason Pellegrino. Picture: Hollie Adams

A surprising new name has emerged as a contender for the $900m-plus stake in Property Exchange Australia – the $3bn online real estate listings company Domain.

Sources say that Domain, which is 60 per cent owned by Nine Entertainment, is set to line up in the contest to buy the 44 per cent interest in the electronics settlements business that is currently subject to a sale or a demerger, taking on major superannuation funds, private equity groups and infrastructure investors in the auction.

However, the big question is how Domain would fund the acquisition of the stake, currently thought to have an equity value of at least $900m.

One possibility is that Domain becomes part of a consortium to buy the interest, but should it be going solo in its pursuit of the business, a large equity raising may be inevitable.

It comes after it emerged this week that Domain plans to retain the $8.3m of JobKeeper payments it received in the past year, with the group reporting a 19 per cent surge in its half- year profit to $54.5m.

The result was 6 per cent higher than analysts had expected, but shares fell more than 6 per cent during intraday trade when the results were delivered.

This was with concerns about the company’s future earnings and higher costs.

Shares closed down 3.3 per cent on Thursday to $4.96.

Domain chief executive Jason Pellegrino defended a move to retain the Job Keeper payments, indicating that the residential market could be in for a decline, particularly in Victoria, which is only just emerging from a snap lockdown.

Government subsidies linked to the pandemic are set to wind down and banks are starting to take a tougher stance on outstanding mortgage payments.

While delivering results, Mr Pellegrino was pressed on speculation about an upcoming corporate deal.

Mr Pellegrino said any deal would have to be in keeping with the company’s strategy and pointed to its first year-on-year growth in market listings in two-and-a-half years while emphasising the company’s spending on technology.

He added that the company had 20 per cent like-for-like core digital earnings before interest, taxes, depreciation, and amortisation growth in the first half and was investing capital into new products.

Domain’s rival REA Group, which counts News Corp, publisher of The Australian, as a 62 per cent shareholder, is understood to have looked at the business in the past.

However, concerns exist that PEXA may come under regulatory pressure to share its electronics settlements infrastructure with competitors.

PEXA dominates the property transfers market, handling more than 70 per cent of all transactions nationally online.

Market experts say that they can see how Domain could argue a deal makes sense.

Domain is an ASX-listed real estate and technology services business for the Australian property market that offers residential and commercial property marketing services via listings portals on desktop and mobile, and via social media and print magazine.

It also offers data and technology services to real estate agencies through customer relationship management software, property data subscriptions and research, and property inspection management tools.

In recent years, Domain has started also offering transactional services available to consumers at different points in the property lifecycle, including home loan brokerage, residential and commercial utilities product comparison and connection, and home improvement and local trade services.

The 44 per cent stake in PEXA is up for sale through Macquarie Capital and UBS by Link Group, which is currently subject to a potential $2.9bn takeover by The Carlyle Group and Pacific Equity Partners.

As a result of the private equity interest, Link has opted to run a dual track process for the PEXA interest, for which the private equity suitors have ascribed a $900m value.

Other suitors include Kohlberg Kravis Roberts, Macquarie Infrastructure and Real Assets and Keppel Group.

Promotional material has been sent to prospective bidders, but the sales contest is yet to get underway in earnest.

PEXA’s earnings before interest, tax, depreciation and amortisation were $58m for the year to June, while it generated $155m of revenue for the same period.

Other owners include Morgan Stanley Infrastructure and the Commonwealth Bank of Australia.