Why PropertyGuru’s Missed IPO Exited is the Knock-on Effect of Founders in Control

99.co’s co-founder and CEO Darius Cheung declared, “We are coming for market leadership. This is a key milestone that positions us instantly as number one in Indonesia, and well on our way to that in Singapore. Our innovative DNA plus REA’s unrivalled experience and resources make this partnership a lethal combination Southeast Asia has not seen before.”

The announcement was not good news for PropertyGuru. However, the executive quoted above argued that the merger was a mere reaction to PropertyGuru’s decision to go public, and it didn’t cause the IPO plan to fail. “It is also about how REA Group has been looking to offload some of its Southeast Asian business,” he said, adding that there is a misalignment within the Australian company.

2019 told a different tale.

REA Group entered Southeast Asia in 2016 when it acquired and delisted iProperty Group from ASX at a $534 million valuation. The deal saw REA Group expand its footprint to Malaysia (iProperty.com.my), Indonesia (Rumah123.com), Singapore (iProperty.com.sg), Thailand, and the Philippines.

Through the JV, REA Group is investing $8 million into 99.co and merging its Singapore and Indonesia businesses with 99.co’s existing businesses, giving REA Group a 27% stake in the joint venture.

REA’s Malaysia business, iProperty.com.my, remains unsold and holds the pole position in the Malaysian market with a 50% share.

Meanwhile, another source said PropertyGuru “made the mistake” of going after REA’s shareholders. “I understand why PropertyGuru chose to list on ASX because there are similar businesses listed there, which means retail investors understand the classified business. But I think that triggered REA Group’s move to join forces with 99.co,” said the source.

The same source also suggested that PropertyGuru could consider going public in New York’s Nasdaq. “It has the kind of investor base that PropertyGuru needs, but of course the listing requirements are more complex, and the fees are also higher.”

For context, ASX has been a popular listing destination for tech businesses, including online classified businesses such as REA Group and SEEK group (job listings). They have a A$13.4 billion ($9.16 billion) and A$7.9 billion ($5.4 billion) market capitalisation, respectively.

Tough times

Tough times

ASX raised only $416 million in the first nine months of 2019—the lowest amount for the period since 2012.

Besides, PropertyGuru was not the only one to cancel its float on ASX. This year alone, more than $1.5 billion of first-time share sales have been withdrawn—the most since 2008, when $2 billion of IPOs were postponed, according to a Bloomberg report.

Wait, wait
One of ASX’s most anticipated IPOs, Latitude Financial Services, was aborted for the second time in November, because its investors including KKR, Deutsche Bank, and Varde Partners refused to offer a price per share that reflects a fair value given the strength and performance. The IPO would have valued the business at about A$3.1 billion ($2.1 billion), a big discount from its first offering that would value Latitude at A$5 billion ($3.4 billion). [Image via Aaron Burden/Unsplash]

The IPO flops suggest private equity investors are trading assets at inflated prices. In PropertyGuru’s case, it gave an indicative price range of A$3.70 ($2.53) to A$4.50 ($3.08) per share for its IPO. Assuming the final price was at the low end of the range and the offer succeeded, the IPO would have raised about A$345 million ($236 million).