According to sources familiar with the deal, institutional investors ordered 15 times the amount of shares available, which allowed joint bookrunners Goldman Sachs and Cowen & Co to fix the price at the top end of the indicative range at $15.25 per American Depositary Share. There was believed to have been virtually no price sensitivity in the book even though the top end of the range did pitch the company at a premium to its main comparable.
There was further evidence of the strong demand when the stock opened 25% up on its trading debut last night. From that high of $19.10 the stock did move gradually lower, however, and one hour into trading it was quoted at $16.54, or 8.5% above the IPO price.
The investor excitement was believed to have been at least partly triggered by Yahoo! taking a stake in the company a couple of weeks before the IPO as part of its efforts to expand its operations in Asia. However, GmarketÆs strong earnings growth and its rapid climb to become a leading player in KoreaÆs online auction market together with eBay-owned Internet Auction was also said to have impressed potential buyers.
According to one source, about 90% of the investors who met with the company management in 60 or so one-on-one meetings during the roadshow placed an order and overall approximately 250 accounts participated in the deal. Aside from long-only investors and hedge funds, there was also said to have been very strong demand from high net-worth individuals.
The bulk of the roadshow focused on the US, including cities not often visited by Asian listing candidates such as Baltimore, Houston, Chicago and Denver, which meant it was no surprise that 70% of the demand came from the US. The rest was split fairly evenly between Europe and Asia, with perhaps a small bias for the former, market sources say.
The final price values the company at 65.5 times its 2006 earnings, which according to syndicate research are expected to double to W11.1 billion ($11.9 million) from W5.09 billion ($5.24 million) last year. However, given the good earnings visibility most investors tend to look ahead to 2007 when the PE multiple drops to 23.9 times due to expectations net profit will jump to W28.7 billion ($32.7 million).
Even on a 2007 basis, however, Gmarket was sold at a premium of about 8% over its closest comparable eBay, which trades at a 2007 multiple of about 22.2 times. The gap widened somewhat above what was intended earlier this week when eBay dropped 4.7% on the back of news that Google, the worldÆs biggest search engine group, is getting ready to launch a test version of a new online payment system û Gbuy û that could rival eBayÆs lucrative PayPal system.
GmarketÆs final price also compared with the $13.32 per share that Yahoo! paid for what will be a 9.1% stake after the IPO. Yahoo!Æs investment, which totaled $60 million, was done at a 2007 PE multiple of about 21 times.
ôAlthough 24 times æ07 is not that cheap, it did seem acceptable to investors considering that eBay has an EPS visibility of about five years during which it is expected to grow at about 25% per year, while GmarketÆs expected growth during its two-year earnings horizon is more like 100% (per year),ö one observer says.
Gmarket offered 9.1 million ADSs (each accounting for one common share) at between $13.25 and $15.25 apiece. Two thirds of the units are backed by primary shares, while the remainder is made up of secondary shares that were sold mainly by company executives and directors.
There is a 15% greenshoe of all secondary shares provided by Oak Investment Partners, which will sell no shares in the base offer. If fully exercised, the additional 1.37 million ADSs will boost total proceeds to $159.9 million.
Having started out as an online retailer with its own inventory, Gmarket has gradually turned into a dedicated provider of various platforms where other retailers and individuals can offload their goods directly to the consumer. The strategy has clearly paid off. Having launched its online auction site only at the end of 2003, Gmarket went from a market share of 3-4% to 20% in less than a year and is now neck and neck with its main competitor, Internet Auction.
ôThe two companies are quite equal in terms of market share and together control about 30-40% of the market,ö the same observer says. ôBoth of them can be expected to continue to consolidate their positions, but Gmarket's objective is to surpass its rival and become the sole leading player.ö
Aside from the online auction business, Gmarket also operates platforms for fixed-price sales and acts, among other things, as an online storefront for small companies which donÆt have their own website.
Korea boasts the largest e-commerce retail market in the world in terms of the percent of the population that shops online. The country also has the highest broadband penetration in the world and is seeing growth in both consumption and disposable income, which makes for a good backdrop to the online retail market.
The Korea Information Strategy Development Institute projects the combined GMV for all online shopping malls in Korea will jump to W14.6 trillion ($16 billion) in 2008 from W10.7 trillion split on 4,335 virtual malls in 2005 and W7.7 trillion in 2004.
Yahoo!Æs pre-IPO investment was viewed as a sign the US Internet giant has confidence in the growth of the Korean online shopping market as well as in the earnings growth projections delivered by the Gmarket management. According to people familiar with the offering, the investment also helped attract the attention of a broader range of investors, including non-Asian specialists.
The successful deal bucked the current trend in the US IPO market, with June being the worst month so far this year. According to bankers, five out of 16 deals have had to be pulled and of the remaining 11, six were priced below the indicative range.
¬ Haymarket Media Limited. All rights reserved.
