Source Docs: Media Release, Deck, Infographic#1, Infographic#2
PayU will pay $4.7bn for 100% of Billdesk. At ~$253mn of Revenue and 17% EBITDA Margin, this is ~18x TTM revenues, ~109x TTM EBITDA.
Listed peers like Dlocal and Ayden are trading at highs of ~120x and 66x revenues respectively. So did Prosus get a really good deal? Or Did Billdesk pull a fast one?
Looks like it’s a good deal. Here’s why:
Let’s look at EBITDA numbers - Billdesk makes a profit and is debt free. Assuming a 25-30% topline growth and constant EBITDA margin, Prosus has paid ~80x forward EBITDA. Still pretty steep.
The value here (In my opinion) lies in the optionality that this creates. Not to mention the size boost.
We all know the strategic drivers - 200mn new potential users, strong tailwinds, insanely high TAM etc. But that is also why we have 1000 pound gorillas like Whatsapp, PayTM, Google Pay, PhonePe sitting here. So why concentrate risk in the portfolio here especially when PayU is already there?
Short answer - Plugging a hole.
PayU has not been a very strong B2B player, when compared with Razorpay etc.
Billdesk’s primary customers are large businesses and government. This acquisition effectively completes PayU’s offerings stack.
The network that Billdesk brings is extremely valuable for a PayU. This acquisition effectively makes PayU to go from being #25 to #7 player in TAM terms (deck, page 9).
Also, there will be 10-15% cost savings in the long run AND margin expansion. PayU’s EBITDA margin is 3%. Billdesk is 17%.
What I find absolutely amazing is the value they seem to have found.
Let’s assume that the standalone Billdesk business continues to grow at 20-25% rate. then, to generate an 18% IRR (which will be pretty respectable), all they need to do is to sell it off in 10 years at approx. 35x P/E. That’s not really a tall ask given the macro opportunity.
Optionalities are also huge, especially when looking at in terms of the rest of the portfolio. PayU can now easily become a new bank in its own right. All the components are already there (ref image below - from their deck).
So yeah, I never thought I’ll find myself saying it, but a 100x EBITDA multiple is rational.
More importantly, Prosus is not just Tencent less operating costs. There is a lot of method to the madness.