REA Group (ASX:REA) share price in focus amid acquisition news

The REA Group Limited (ASX: REA) share price could be on the move today after announcing a new transaction this morning.

What did REA Group announce?

REA Group’s announcement reveals that it has entered into a binding agreement to increase its ownership interest in India-based Elara Technologies.

At present, REA Group holds a 13.5% shareholding in Elara Technologies, but this agreement will see it move to a controlling interest in the company.

According to the release, on completion REA Group will hold 5 out of 9 board seats and is expected to have a shareholding of between 47.2% and 61.1%.

The total consideration for the transaction is expected to be in the range of US$50 million to US$70 million. Of this, US$34.5 million is payable out of existing cash reserves, with the balance to be paid in newly issued REA shares.

Management expects the transaction to complete in the second quarter of the current financial year. Though, it remains subject to confirmatory due diligence and the renegotiation of key management employment contracts.

What is Elara Technologies?

Elara Technologies is the operator of India’s fastest growing digital real estate business based on audience size.

It has established brands Housing.com, PropTiger.com and Makaan.com operating in the world’s fastest growing trillion-dollar economy. Management notes that it has continued to increase its market share during the pandemic, delivering excellent audience and customer growth over the past two years.

REA Group CEO, Owen Wilson commented: “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. 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,” he added.

Assuming a completion date of 30 November, management expects REA Group’s FY 2021 revenues to increase between A$15 million to A$20 million. However, core operating EBITDA (excluding associates) is expected to decrease by A$20 million to A$25 million, with the contribution from associates increasing between A$3 million and A$5 million.

The earnings per share impact is expected to be marginally dilutive and is dependent on the volume of the remaining shareholder acceptances. Though, management warned that FY 2021 revenue, EBITDA, and associate ranges are indicative only, due to the market volatility caused by COVID-19.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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