E-commerce giant eBay kicks off $4.6 bn sale of eBay Korea

E-commerce giant eBay Inc. has officially kicked off the sale process of eBay Korea Co., valued up to 5 trillion won ($4.6 billion), with its sale managers Goldman Sachs and Morgan Stanley carrying out pre-marketing activities.

The US head company mandated sale managers at the end of last year and the sell side has been reaching out to retail companies and private equity firms that may be interested in the deal, according to the investment banking industry on Jan. 5. 

The sale has been anticipated for some time, given that eBay was going through tough restructuring after US hedge fund Elliott Management Corporation urged the e-commerce company to focus on its core market, as reported earlier.

eBay has been poking around companies that may be interested in the deal since 2018, but discussions were never formalized due to differences in the expected price. Initially, eBay Korea denied reports of the sale, but market players agreed it was only a matter of time before the company officialized it.

Entering the Korean market in 2000, eBay Korea expanded its presence by acquiring then Auction Co. Ltd. in 2001, and rival Gmarket in 2009. In 2013, the company also launched a curated shopping platform, G9.

eBay was once considered the largest e-commerce platform in Korea as it boasted over 70% market share. But its growth went stagnant with the arrival of newcomers in the market.

The company's weakened presence in Korea is partially owing to its focus on profitability, while its rivals ramped up logistics investments to gain a bigger market share.

The company's business model is different than its rivals Coupang, TMON and WeMakePrice, which have their own distribution networks. Business owners pay a fee to list and sell their products on eBay Korea's platforms, including Gmarket and Auction.

eBay Korea took a heavy hit when Korea's portal giant Naver Corp. upgraded its shopping services in line with open market platforms. Naver's seller fees were the lowest with access to a convenient payment system, encouraging business owners to list their services on Naver's shopping platform, Smart Store.

Naver's shopping platform's transaction amount topped 20 trillion won in 2019 and is estimated to have exceeded 30 trillion won last year.

eBay Korea has made various efforts to catch up, such as rolling out a private label credit card, Smile Card, which rewards points and benefits to the users, but its rivals have already formed a competitive landscape.

The company's struggles are reflected in its earnings, as its operating profit remains sluggish despite annual revenue growth. In 2017, eBay Korea posted 951.8 billion won in revenue, which rose slightly to 1.6 trillion won in 2020. During the same period, its operating profit dropped from 62.3 billion won to 61.5 billion won.

Also, the average annual growth rate for Korea's e-commerce market is around 20%, which eBay Korea falls short of. While most e-commerce platforms fared well last year due to the COVID-19 pandemic driving up online shopping, eBay Korea did not perform as well.

SELLING PRICE TO BE THE KEY FACTOR

Some industry watchers say that eBay Korea is an attractive acquisition target considering it is the only profit making e-commerce platform in Korea. 

If leading retail companies such as Lotte or Shinsegae were to acquire eBay Korea, the platform could become the country’s leading e-commerce service. Lotte and Shinsegae currently operate their own e-commerce platforms, which both posted record-high earnings last year.

Hyundai Department Store is also a potential candidate given that it was active in the M&A market last year.

Meanwhile, private equity firms may be promising buyers as well since many firms set up sizeable funds last year but took a wait-and-see approach due to the impact of the pandemic. Generally, PE firms tend to exhaust their funds within two years of establishment, making it all the more likely for them to participate in a hefty deal.

PE firms that have invested or acquired retail companies in Korea include MBK Partners, which acquired grocery chain Homeplus; Affinity Equity Partners, which invested in Shinsegae's online shopping platform; as well as KKR & Co. and Anchor Equity Partners' investments in TMON.

Another plausible scenario includes global PE firms teaming up with domestic retail companies to participate in the deal.

The biggest obstacle will be eBay Korea's price, as it is understood that the sell side is seeking at least 5 trillion won. The company's valuation is based on 0.3 times the transaction value of 17 trillion won in 2020.

Industry watchers say the price should be between 2 trillion won and 3 trillion won as eBay Korea’s business model is different from other open market platforms, and the same multiples should not be applied. Also, the premium for its management rights is unlikely to be high.

Another potential hiccup in the process could be the sale process of Yogiyo, the country's second-largest food delivery app, which is valued at 2 trillion won. The deal is expected to have a considerable effect on eBay Korea's sale process as potential buyers may overlap.

“Coupang and other e-commerce companies have dominated the market, which weakened eBay Korea’s competitive edge,” said an investment banking industry source. “But it is the third largest e-commerce company based on transaction volume, so if the price is reasonable, then the deal will go through.”


Write to Chae-yeon Kim at why29@hankyung.com
Danbee Lee edited this article.