Wesfarmers paid a fair price when it outlaid $230 million for the online marketplace Catch Group, say Citi analysts.
The price paid by Wesfarmers equates to 13 times Catch Group’s enterprise value to earnings before interest, tax, depreciation and amortisation.
“We consider the $230 million acquisition price and estimated 13 times. acquisition multiple to be fair and will be comfortably funded from Wesfarmers’ existing debt facilities,” analysts said in a research note.
Analysts said the acquisition should enable Target and Kmart — which on Thursday was issued a second profit warning since January at the Wesfarmers investor day — to leverage Catch’s digital capability and investment in supply chain.
“While a relatively small bolt-on acquisition in the context of the wider Wesfarmers Group, in our view, this adjacent acquisition presents better value for shareholders given the likely presence of synergies for Kmart and Target.
Citi said the Catch Group acquisition should provide a much needed boost to Kmart and Target’s e-commerce capability, as the acquisition essentially replaced future capital spending that would be required to improve what was a rudimentary online offer at this stage.
“We see clear benefits of scaling Catch Group’s digital, customer and data capability across Kmart and Target, as online continues to grow as a channel and bricks and mortar like-for-like sales growth slows.”
Citi said that while it was difficult to quantify synergies, the acquisition should drive productivity benefits across supply chain, fulfilment and online execution.
“Long term, the group could potentially realise revenue synergies through the Anko brand, introducing Kmart’s private label product into Catch’s marketplace.”
Citi said Wesfarmers should also benefit from Catch’s heavy investment in supply chain automation, acquiring Catch Group’s two fully automated distribution centres both located in Trugania Victoria.
The distribution centres were likely to complement the existing supply chain of Target and
Kmart, which were currently geared around store delivery.
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