Domain Holdings Australia Ltd (ASX: DHG) shares are up 5.6% after announcing an acquisition.
Domain is the business behind one of Australia’s largest property portals, Domain.com.au, which allows property sellers to try to advertise to as many potential buyers as possible. Some of the other real estate websites it operates includes Allhomes.com.au and Commercialrealestate.com.au.
Domain’s acquisition
Domain is expanding its website portfolio. Today it announced the acquisition of Commercialview.com.au. This is a commercial property online listings platform that is owned and supported by leading commercial real estate agents in Victoria and NSW.
The acquisition will be made by a Domain subsidiary that’s 70% owned by Domain and 30% by members of the commercial real estate industry.
The acquisition price is between $4.2 million and $17.2 million. The reason for such a big difference in the potential prices is that it relates to the future financial performance of the business. The maximum payment of $17.2 million is based on $2 million of cash and the rest in shares of the Domain subsidiary.
If the business achieves ‘on-target’ performance then the purchase price will be $10.2 million, which equates to four times the projected increase in EBITDA (click here to learn what EBITDA means) from the transaction for the 2020 calendar year, including synergies.
Domain CEO Jason Pellegrino said: “Commercial Real Estate has seen tremendous growth in the last three years, benefiting its customers, shareholders and the broader industry.
The unanimous support for the transaction from CommercialView shareholders is a strong vote of confidence in the upside potential of our Commercial Real Estate business.”
Are Domain shares worth buying?
REA Group Limited (ASX: REA) has been a very impressive performer. Over the past decade its share price has gone from $3.50 to over $74, it’s still growing revenue and profit by more than 10% each quarter over the prior year.
In a recent trading update for the first 15 weeks of FY19 Domain said that total revenue was 1% lower and digital revenue was only 6% higher.
There are several reasons to believe Domain can grow profit over the long-term, particularly with its parent company’s merger with Nine Entertainment Co Holdings Ltd (ASX: NEC).
However, with it trading at a similar FY19 price/earnings ratio as REA Group of around 30, without the international property site investments, REA Group could be the one to generate bigger returns.
It remains to be seen if Domain can easily get through this property downturn which is resulting in a falling number of listings. It could be worth looking at shares with proven track records such as the shares in the below free report instead.
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