REA Group Limited (ASX: REA) has taken a 17.22% stake in Asian property portal owner iProperty Group Ltd (ASX: IPP), giving REA a stake in the growth markets of Asia.
REA, the owner of Australia's dominant property portal realestate.com.au, has purchased just over 31 million shares in iProperty, from French company SeLoger.com SAS, at a cost of $106 million.
The price REA is paying, $3.40 per share is a substantial premium to the last closing price of $3.12, and is likely to see iProperty shares soar in early morning trading.
So why does REA want a piece of iProperty?
It's a combination of factors, including potential slowing growth in Australia for REA, and the drive for dominance of the Asian markets, as REA has established in Australia.
As REA Group interim CEO peter Tonagh said today, "This acquisition provides us with a strategic stake in one of the fastest growing real estate markets in the world, and complements our existing business in Hong Kong, the recent launch of MyFun.com and our partnership with Soufun.com in China."
iProperty has online property portals in Malaysia, Indonesia, Singapore, Macau and Hong Kong, as well as investments in India and the Philippines.
REA is facing a backlash from Australian real estate agents, with around 1,000 teaming up to negotiate better advertising rates with the market leaders. That is probably nothing more than a storm in a teacup – REA says it provides around 85% of all leads to real estate agents, something that is impossible to ignore.
REA copying Carsales.com's strategy?
REA's strategy appears similar to that of Carsales.com Ltd (ASX: CRZ). Carsales has a 22.9% stake in iCar Asia Limited (ASX: ICQ). iCar holds the leading online automotive sites in Asia, with operations in Thailand, Malaysia and Indonesia. Carsales CEO Greg Roebuck has also noted the potential for high growth in Asian nations.
iProperty Group may appear very expensive on commonly used valuation metrics, but then again, so has REA group for much of its life, but has returned shareholders many times their initial investment.
