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The company behind realestate.com.au is set to spend $71-99 million to take a controlling interest in Elara Technologies Pte Ltd, India's fastest growing digital real estate business in terms of audience.
REA Group (ASX: REA) has already dipped its toes in the venture with a 13.5 per cent shareholding in the group that owns Housing.com, PropTiger.com and Makaan.com, but now it has entered a binding agreement to increase its interest.
Due diligence will still be necessary before Elara hands over the keys, but upon completion REA will hold five out of nine board seats and is expected to have a shareholding between 47.2 per cent and 61.1 per cent.
The agreement is in US dollars with a range between US$50-70 million, with US$34.5 million ($49 million) payable out of existing cash reserves and the balance to come from newly issued REA shares. The cash sum will pay for 50 per cent of Elara's debt facility.
The Australian group highlights Elara has continued to increase its market share despite the impacts of COVID-19, delivering "excellent" audience and customer growth over the past two years.
Elara experienced a compound average growth rate in revenue of 42 per cent from FY17 to FY20. This rate slowed due to COVID-19 but sales were still up 9 per cent in FY20 at $27 million.
Elara's listings volumes have rebounded from the COVID-19 lows in June but remain lower than pre COVID-19 levels.
"India is an incredibly attractive market and one that provides excellent long-term growth opportunities, while complementing REA's footprint in Asia and North America," says REA Group CEO Owen Wilson.
"The country is forecast to deliver strong growth over the next decade and continues to experience rapid digital transformation.
"With over 700 million internet users and roughly half a billion yet to come online, our increased investment in Elara will allow REA to be at the forefront of the considerable long-term opportunities within India, and the digitisation of the real estate sector."
REA notes Elara has a differentiated offering in India providing a full range of property services across digital advertising and transactions including personalised search, virtual viewing, site visits, home loans and post-sales services.
"This transaction creates a unique opportunity to leverage the combined talent and expertise of REA and Elara to become the number one digital real estate business in India," adds Wilson.
Elara's financial results are expected to be fully consolidated by REA from 1 December 2020, lifting revenues by $15-20 million and reducing core operating EBITDA by $20-25 million.
US-based media giant News Corp (ASX: NWS), the majority owner of REA Group, has also agreed to subscribe for US$34.5m ($49 million) of preference shares in Elara to pay off the remainder of the Indian company's debt, lifting its shareholding from 22.1 per cent to 38.9 per cent.
The second stage of REA acquisition based on scrip will involve an offer to buy all remaining shares in Elara not held by News Corp, meaning the two entities will have full ownership.
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