Deals Direct began publicly trading today, after it successfully completed a backdoor listing that sees it become the first pure-play online retailer on the ASX.
Deals Direct CEO and co-founder Michael Rosenbaum tells SmartCompany they undertook a backdoor listing as it was a “speedier route to market”.
A backdoor listing involves a private company being acquired by a defunct listed shell company in exchange for shares in that company. This sees the private company become the new owner of the shell company, who then list their business through it. The process is rarely as flashy as an initial public offering, and allows companies to list much more quickly and avoid some of the fees associated with an IPO.
Deals Direct’s backdoor listing saw it being acquired by Mnemon, a former mobile company that was in the process of being deregistered and in a trading halt. Deals Direct now owns 95% of Mnemon’s shares, and has issued $6.2 million in new shares when Mnemon came out of a trading halt today.
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“I think it’s a really exciting time in the space,” Rosenbaum says.
“Deals Direct is a pioneer in online retailing in Australia. And we see this as a great opportunity to leverage the foundation we’ve built over past decade and look to consolidate the market. We’re on the acquisition hunt to build a large e-commerce group.”
The listing follows a trying period for the company.
Deals Direct bought group buying site DealMe in 2011, and white label B2B site Shoppers Advantage. In 2013, the company closed down non-performing sites and exited out of Shoppers Advantage. Those acquisitions did not perform as hoped. The company went from recording statutory profits of $511,000 in 2011 to a $16.85 million loss in 2013.
Rosenbaum described 2013 as a “turnaround year” for Deals Direct. “We moved out of those non-performing segments and refocused on our core, which was our online department store Deals Direct. That’s now in a strong position.”
The $6.2 million raised in the listing will be put towards acquisitions, Rosenbaum says.
“We have an open mind at this stage, but we’re looking for businesses that are struggling to scale. Things with $10 million a year or more in revenue, though they could be much larger than that, or similarly sized to us.”
Rosenbaum says while the online retail space is growing, it’s still a long way behind the United States, meaning there are still opportunities for savvy retailers. “Over time, we think there’ll be two to three large e-commerce groups, and we’ll be one of them. The smaller players are going to need to consolidate with one of the largest players to ensure success.”
What this means for Australian online retail
Deals Direct is the first pure-play online retailer in Australia to list, which Rosenbaum says he’s “delighted” about.
His co-founder Paul Greenberg is similarly chuffed. “It’s a bit like seeing my teenage son leave home,” he told SmartCompany.
Greenberg hasn’t been involved in the business for over a year. He’s now chairman of the National Online Retails Association, and says Deals Direct’s listing is good news for the sector.
“Three years ago, 2011, was a big year for online retail. The big four – OzSale, Gray’s Online, Deals Direct and Catch of the Day – they all got venture capital behind them.
“Meanwhile, it was a difficult time for retail in general. No one’s been immune, and the truth is, I think a lot of retailers big and small struggled with the changes.
“All that got in the way of the smooth progression to market of those large online retailers. But that’s changing now. I expect we’ll see a bit more action in the sector.”
Deal Direct’s listing, Greenberg adds, is a vote of confidence in its business from its investors and the ASX, which has rigorous listing rules.
“I think it’s a good story. Yes, Deals Direct has made some silly mistakes, but that’s part of life. I call it failing forward. I’m very bullish on Deals Direct.”
Deals Direct is far from the only Australian online retailer to look at listing in recent times. Catch of the Day is also looking to list this year, and OzSale confirmed a year ago that it was heading towards an IPO.