• Adevinta continues streamlining, as expected
• FDV moves from “frontier” to more-established markets
• Growing ambitions by FDV on the global stage

As we predicted, Adevinta has started selling off sites in non-core territories. The winner for now is Frontier Digital Ventures (FDV), which is growing into a significant operator of sites in frontier and emerging markets.

Adevinta Wednesday announced the sale of three marketplaces to FDV:

• Avito.ma in Morocco (not to be confused with Prosus-owned Avito.ru in Russia), the No. 1 horizontal marketplace in the country. It saw revenue of A$8 million in 2019.
• FincaRaiz.com.co, the No. 1 real estate marketplace in Colombia. Revenue of A$8.5 million in 2019.
• Tayara.tn, the No. 1 horizontal marketplace in Tunisia. Revenue of A$1 million in 2019.

The deal makes sense for both parties, and puts the spotlight on FDV as a fast-growing
classified company with expansion ambitions. The price was roughly A$56 million Australian
($40 million U.S.). FDV is based in Kuala Lumpur, Malaysia, and traded on the Australian
Securities Exchange.

FDV noted in its news release that its current portfolio was overall EBITDA-positive in July and August, “despite Covid-19.” It said the acquisitions would make “a significant contribution to revenue on an FDV ownership basis, and increase scale and diversification across key geographies and verticals.”

FDV raises funds to back the deal

FDV launched in 2014 as a small investor in tiny startup classified sites in truly frontier markets, like Myanmar, Tanzania and Sri Lanka. CEO and Founder Shaun Di Gregorio, one of the three initial investors in the company, told us back then that it worked closely with founders to keep them on track, but didn’t get involved in day-to-day management of the
companies.

Now, he said, the company is looking both for more acquisitions and to become an operator. It’s not a full pivot, he said.

“[This is] more like evolution — getting more established businesses and buying them at 100%,” Di Gregorio told us in an email interview. “Our ambition is to try to get to 100% of our better portfolio companies over the journey.”

“We have tremendous support from investors and we believe there will be more opportunities out there,” he said. “We are patient and considered but have the ability (and the balance sheet) to move quickly if the right opportunity presents itself.”

FDV shares have risen from A$1.05 at the start of September to a close of $1.56 on Wednesday. The company halted trading for three days — later increased to about five weeks — while it organized a capital raise of A$100 million in new equity. The financing was priced at $1.25 a share, which represented a 20.1% discount to FDV’s closing price on Wednesday.

Before the trading halt, FDV had a market cap of A$412 million ($295 million U.S.).

Australian finance houses Morgans and Bell Potter were early backers for the financing. The raise was split between a A$63.4 million placement and an entitlement offer to raise the balance. While A$56 million of the new equity is going to buy the Adevinta companies, the rest was been pegged for growth capital, balance sheet flexibility and the payment of transaction costs.

No date was given for closing of the transaction with Adevinta.

Frontier Digital Ventures last raised equity in July when it placed stock at 97.5¢ a share with institutional investors in North America, to raise $6.5 million. Its biggest shareholders include Patrick Grove of the Catcha Group, Di Gregorio, co-founder Luke Elliott, and Sydney-based fund management firm SmallCo.

A move into the big leagues for FDV?

Until the Adevinta deal, FDV had 12 investments across 18 markets in its portfolio. It will add three market-leading entities that have synergies to its current portfolio companies.

FDV’s current strategic focus is aimed at the following geographies and segments:

• Property and general classieds in Latin America
• Autos in Asia
• A diverse emerging portfolio in Africa

“FincaRaíz, Avito and Tayara are all great businesses in highly strategic and attractive markets for FDV,” Di Gregorio said. “These acquisitions will complement FDV’s existing position in Morocco and accelerate our market entry into Colombia and Tunisia. We are highly supportive of the local management teams at Fincaraíz, Avito and Tayara. We look forward to working with each business to accelerate their growth and help them reach their full potential.”

Avito.ma will complement Moteur.ma, FDV’s market-leading auto site in Morocco, population 37 million. Combined, the two businesses will dominate the Moroccan classified landscape, especially in autos.

FDV is likely to follow the Prosus and Adevinta playbooks. Both major classified owners have been especially effective in managing auto verticals alongside leading horizontals to maximize market leadership. (Examples include OLX.pl / OtoMoto in Poland, and Milanuncios / Coches.net in Spain.)

Tayara is an entry point for FDV into Tunisia, population 11 million, where Tunisia, population 11 million, where classified development is still very early. The expansion to Tunisia is an opportunity to build a classified ecosystem across North Africa.

FincaRaiz will bulk up FDV’s LatAm business, which recently combined forces with OLX, a subsidiary of Prosus. FDV currently holds a 26.3% share in horizontal marketplace brand Encuentra24, which operates across multiple Central American countries.

However, Colombia offers a market of 50 million, comparable to all of Central America, and could potentially be the most lucrative acquisition of the three. Horizontal OLX.com.co is a significant rival in Colombia, with monthly total visits of around 6 million.

FDV has stated that it will offer extensive support to Avito, Tayara and FincaRaíz to accelerate growth and enhance their products and services.

Expected selloffs by Adevinta

In the AIM Group analysis of Adevinta’s planned purchase of EBay Classieds Group (AIMR 21.15, Aug. 6), we projected Adevinta would sell businesses that were small and non-core.

“Although we see great growth potential for Avito, Tayara and Fincaraíz, our strategy is to place enhanced focus on large markets with leading positions,” Adevinta CEO Rolv Erik Ryssdal said in the sale announcement. “Frontier Digital Ventures is committed to growing these sites to their full potential. I am confident that their expertise in emerging markets will support these sites’ continued growth for the benefit of their local markets, users and teams.”

Adevinta’s core focus is now mature Western European markets like Germany, France, Italy, Spain and the Benelux countries. Adevinta is focused on developing transactional models and strong networking in advanced economies. Real estate and automotive are its clear focal points.

In June, Adevinta sold Corotos.com.do, its horizontal marketplace in the Dominican Republic. As it further streamlines and looks to offset the US$2.5 billion of cash it’s paying to EBay for its classified business, the most obvious candidates for sale are its Latin American companies: SegundaMano in Mexico, a horizontal focused primarily on real estate, along with Yapo.cl in Chile and InfoJobs in Brazil.