Entrepreneur

The Real Question Behind Carousell's Recent Merger: Is The New Unicorn Gunning For An IPO?

One of the biggest news that came out earlier yesterday was the news of Carousell merging with Norwegian telco Telenor Group-owned classified site 701Search.

Following this merger, Carousell is now valued at US$850 million (S$1.16 billion).

This means that it has reached the much desired “unicorn” status — a coveted standing reserved for companies with over a billion-dollar valuation — in Singapore (based on Singapore dollars conversion).

For a deeper look into the merger, let’s first establish some financial background and timeline:

  1. 701Search was founded in 2006 by SPH Interactive International and Norway’s Schibsted Classified Media. Both are equal partners.
  2. In 2013, Norwegian telco Telenor Group came onboard as a third equal partner. 
  3. In May 2017, SPH sold its 33.3% stake in 701Search for about US$109 million. This values 701Search at US$330 million (S$450 million). However, according to the annual report of Telenor Group, the valuation was recognised at US$295 million as Telenor paid a total of NOK 1.8 billion for 66.7% in cash consideration.
  4. According to the same annual report, between 11 May 2017 and 31 December 2017, 701Search contributed NOK 66 million (US$7.2 million) worth of revenue to the group financials. 
  5. In April 2019, Carousell announced that it has merged with OLX Philippines, at a deal worth US$550 million.
  6. With the 701Search merger, it is reported that Carousell is now worth US$850 million.

Looking at these numbers, several questions come to mind.

Two years after the acquisition of 701Search, Telenor divested the entity to Carousell at almost the same price they acquired it. This means that both Carousell and Telenor did not make any gain from the merger. 

So this begs the question, ‘why did the merger happen in the first place?

One potential reason could be that Carousell might be gunning for a potential initial public offering (IPO) in the near future as a form of capital raise.

As A Company Grows, It Needs To Bear Bigger Costs

Over the past few years, Carousell has grown to the startup behemoth that it is today, and with that growth, comes cost.

In 2018, Carousell made a total of US$7 million in revenue. However, the staff costs stood at US$17.5 million.

The company was unprofitable at the end of the year, with a net loss of US$25 million. It reportedly still had US$55.4 million in cash as at end-2018 to support a total headcount of over 400 people globally. 

carousell team
Carousell team / Image Credit: Carousell

With the merger with OLX Philippines, this added an additional 100 headcount to Carousell’s total headcount.

According to other various reports, the recent merger with 701Search also meant that there will be a further 300 headcount that will join the Carousell family. This move will skyrocket the cost for the new Carousell.

How Is Carousell Financially Supporting Its Growth?

To raise more funds, one of the only channels left would be to seek public funding via the capital market, which is through an IPO.

While an IPO is ruled out by Carousell CEO Quek Sui Rui in a previous media report, we still think that for a huge consolidated company like Carousell to raise further capital, an IPO is the most likely fundraising option. 

Another reason that led us to believe that Carousell might opt for an IPO is the renewed focus from the team towards increasing their revenue and monetisation.

The merger with 701Search will bring the annualised revenue of Carousell to over US$40 million from just US$7 million last year. A big revenue growth will surely whet the appetite of investors in the event of an IPO.

Of course, financial fundamentals aside, the merger is a great win for Singapore and Southeast Asia.

Carousell is probably one of the longest-standing startups around since its founding in 2012. It has also been consistent in its messaging of making it easy for anyone to buy and sell anything. 

carousell quek siu rui
Carousell CEO and co-founder Quek Siu Rui / Image Credit: South China Morning Post

For 33-year-old Quek Siu Rui to lead an organisation of veterans in the classified advertising industry is also not a small feat. This is especially so as there are no textbook answers that can help one make decisions on how to manage a cross-country organisation, or to ensure that there is proper culture assimilation between all the different companies. 

So what’s next for Carousell now? Is it a clear category winner in the classified space?

Will they continue to acquire more companies? Or will cash flow requirements catch up with their fundamentals, calling for a need for a public listing?

Regardless, we will definitely keep our eyes peeled for this company.

Featured Image Credit: Carousell

 

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