Catcha ... Sep11

Catcha Media has proposed to acquire the entire equity interest of Singapore’s Haute Groupe Pte Ltd (HGPL) for a total consideration of S$5 million (RM12.4 million), to be satisfied in cash and via new shares.

HGPL runs a luxury fashion sales website, Hauteavenue.com, operating predominantly in Singapore with 25,000 active users.

The proposed acquisition comes with a profit guarantee of S$1.5 million (for a 12-month period commencing after conclusion of the exercise) from the previous shareholders, Long Siew Fong and Low Choong Lang.

This values the acquisition at a three times forward price-earnings ratio (PER), which we deem cheap. HGPL was initially set up to sell luxury goods at a discount for a limited time in warehouses or public halls.

Early 2011, it began operating a luxury flash sales website, www.hauteavenue.com, which sells luxury goods online at a discount for a limited time-frame. The website offers up to a 70% discount on luxury items ranging from branded accessories, handbags to watches and sunglasses.

The purchase consideration will be partly satisfied by the issuance of 1.6 million new shares in Catcha Media at 75 sen each, with the remainder to be paid in cash. This could indicate a potential earnings per share (EPS) dilution of 1%, which deem insignificant to have any impact on the share price given the new acquisition’s earnings accretion of more than 30%.

Cash funding should not be an issue given the company’s recent IPO which raised more than RM15 million.

While this marks Catcha Media’s first venture into e-commerce, the strategy is intended to complement its existing business by introducing the exact model in Malaysia leveraging on the strong 10 million active users recorded in MSN and Lowyat.net portals.