The new entity has taken a flat valuation. Carousell commanded a valuation of $560 million in April following the investment from OLX, while 701Search was valued at $330 million after Telenor bought out partner Singapore Press Holdings (SPH). Following the merger, 701Search accounts for 32% of the newly-combined company—that’s $272 million—with Carousell representing the remaining $578 million.
An $850 million valuation gives a very generous multiple of over 20X of revenue—it’s typically 10X in classifieds—but there’s a belief that revenue can continue to grow. However, the deal reflects that Carousell may be the better positioned of the two entities to do so. Malani explained that the two companies will run as standalone operations to “preserve momentum”, but that opportunities to collaborate will be explored further down the line.
“We’ll also look at what are the things that we can do better,” he added. “[So] something that one asset has figured out that another asset six hasn’t yet, or something that is working insanely well in Vietnam that we should bring to the Philippines.” For Carousell, the deal makes it the undisputed market leader in the region, but it also represents a period of potential stability for 701Search.
Unlike Carousell’s new-age beginnings, 701Search has a far more orthodox origin story. It was born out of the digitisation of the listing business in SPH’s traditional print business. Since then, things have become a lot more complicated.
Its acquisition by Telenor in 2017, for example, isn’t exactly what it may seem on the outside. Telenor bought out shareholder partner SPH, which owned one-third of the business. But its deal to take over the stake of Norwegian media major Schibsted—the third partner in the business—is more intricate.
Schibsted gave up its 701Search stake in exchange for Telenor’s share of the joint venture—SnT Classifieds, which operates in Latin America. The agreement saw Telenor net $406 million overall. That swap deal challenges assumptions that Telenor merely acquired the 701Search business. It was instead an asset swap driven by its partner’s desire to grow in Latin America.
Then there’s the issue of the countries that 701Search doesn’t cover.
The relationship between Telenor and Schibsted is complicated, and it spans many parts of the globe. SnT Classifieds covered Bangladesh and Brazil, while 701Search—which also includes SPH—covered businesses in Thailand and Indonesia.
And this web only became more convoluted.
In a major piece of global consolidation announced in November 2014, Naspers bought into all four of the businesses mentioned above through OLX. While the businesses in Bangladesh and Brazil were never part of 701Search and are not relevant to the Carousell story, the deal did mean that the services in Indonesia and Thailand—Southeast Asia’s two largest economies—were removed from the 701Search business. 701Search remains a shareholder, but those stakes were not subject to the Telenor buyout and therefore continue to be jointly owned by Schibsted, SPH and Telenor.
No Longer Involved
Overnight, the 701Search business that Carousell now owns was no longer involved in Southeast Asia’s two biggest markets.
One can speculate about the impact of that deal—the Indonesia entity actually competes with Carousell today—but the fact that OLX chose those two countries over the others reflects that it considers them to be of greater importance. Following the deal, what was left in 701Search was less premium.
One rival to keep an eye on may be OLX Indonesia, which counts both Telenor and OLX as investors. Data from Similarweb suggests the OLX business enjoys a significant lead over Carousell. There is no suggestion that a tie-up between OLX Indonesia and Carousell will happen. However, classifieds is an inherently acquisitive space, and such an alliance could benefit Carousell significantly while also serving to tie-up investments for Telenor and OLX.