Mark Lister, 26 November 2018

My initial reaction to last week’s news of a potential takeover offer for Trade Me was bittersweet.

Trade Me has been a consistent holding of ours for many years now, so it was great to see the share price jump almost 20 per cent. However, this initial cheer was somewhat fleeting, as gloom set in at the prospect of losing another great business from our market.

Takeovers are a normal, healthy part of the corporate life cycle, rather than something to be afraid of. The issue in New Zealand is that we haven’t had the steady stream of new companies coming to market to replace those that naturally exit.

That’s a problem for the NZX, the investment community and the wider economy. There are a multitude of reason for this dearth of new listings, and the solutions are equally varied.

Trade Me generated huge wealth for its founders when it was sold to Fairfax, before successfully listing on the local market and providing a steady stream of reliable, growing dividends to private investors and KiwiSaver funds.

If it disappears from the local bourse, we should consider the whole experience a win for our capital markets generally. Like the international corporate activity surrounding Restaurant Brands, this is a vote of confidence.

The $6.40 cash price isn’t too bad, not for a first salvo at least. It’s some 25 per cent higher than where Trade Me shares were previously trading, and broadly in line with takeover premiums we’ve seen in the past.

Whether it’s good enough to win the support of the company and the wider investment community is another story. Local fund managers might not let Trade Me go easily, while brokers and private investors will be acutely aware of how difficult it is to replace a market heavyweight.

The prospective acquirer will be doing due diligence over the coming weeks, although it’s hard to see anything untoward being unearthed during this process.

That means the next step is a formal offer, which would see the Trade Me Board of Directors commission an independent report, and ultimately issue a recommendation to accept or reject the proposal. That will leave any final decision in the hands of shareholders.

It’s possible someone else comes out of the woodwork in the midst of that process. With the company now “in play”, anyone who has considered having a go in the past will realise it’s now or never.

That could include the likes of Alibaba, which has been reasonably active in this part of the world, and a trade buyer might see more strategic value in Trade Me than a UK private equity fund.

With Xero having moved across the Tasman and Trade Me now at risk of disappearing, it would seem established, high-quality technology companies are becoming an endangered species.

That said, we still have a few listed on the NZX that are doing some interesting things. The likes of Gentrack, Pushpay, Serko and Vista are all providing unique and innovate products to a globally diversified customer base.

It’s difficult to predict which New Zealand businesses might one day attract the attention of offshore acquirers. However, if we don’t like the thought of others becoming targets, we need to put our money where our mouth is and support them more as investors in the first place.