- Group agrees to acquire Buyagift
- Acquisition accelerates strategy to become ‘ultimate gifting companion’
- Deal drives increase in medium-term margin target
Shares in Moonpig (MOON) rallied 10.3% to 259.2p after the online greeting cards-to-gifts site agreed to acquire gifting experiences business and Red Letter Days owner Buyagift for £124 million in cash.
Online cards leader Moonpig insisted the deal will deliver a step-change in its gifting proposition as it ‘unlocks’ the £6 billion UK gift experiences segment of the £57 billion total addressable gifting market.
Moonpig said the experiences market is growing at a faster rate than total gifting as consumers splash the cash on experiential gifts such as days out, meals and activities rather than physical gifts.
ABOUT BUYAGIFT
Gift experiences platform Buyagift boasts 3.3 million customers across two long-established brands, Buyagift and Red Letter Days and has delivered consistently strong growth over the past 10 years.
Lockdown winner Moonpig insisted Buyagift’s longstanding relationships with over 4,400 partners would be ‘difficult and time consuming to replicate’ and plans to leverage its technology, data and brand-building to accelerate Buyagift’s sales growth.
MARGIN TARGET BOOST
Assuming the acquisition completes by the end of July 2022, Moonpig now expects sales for the enlarged business in the year to April 2023 to be ‘approximately £350 million’.
The company also raised its medium-term adjusted EBITDA (earnings before interest, taxation, depreciation and amortisation) margin target from around 24% to 25% to between 25% and 26% off the back of this ‘margin accretive’ deal.
Chief executive Nickyl Raithatha enthused: ‘The proposed acquisition of Buyagift rapidly accelerates Moonpig’s journey to become the ultimate gifting companion. There is strong strategic rationale for the transaction, and compelling financial benefits.
‘Buyagift is profitable and highly cash generative, with a proven track record of strong growth and we are excited by the ways that we can further transform the business using the group’s proven playbook. We see significant potential for the cross-selling of gifting experiences to Moonpig’s loyal customers.’
THE EXPERT’S VIEW
Russ Mould, investment director at AJ Bell, explained that the digital retailer’s long-term growth plan is focused on selling gifts alongside greetings cards and the company can ‘make a lot more money bundling a teddy bear, box of chocolates and flowers with a birthday card than simply selling the latter on its own. It’s therefore logical to see it acquire to increase its presence in the gifting market and branch out into more expensive experiences.’
Mould added: ‘The purchase of Buyagift includes Red Letter Days, a business previously owned by Dragon’s Den judge Rachel Elnaugh until it collapsed into administration in 2005, blamed on over-expansion. Fellow Dragon’s Den stars Peter Jones and Theo Paphitis rescued the business before selling it in 2017. Once again it passes to a new owner.
‘Moonpig is paying just under nine times EBITDA to acquire Buyagift, which is not a bargain but equally not excessive. Given Red Letter Days’ tarnished history, Moonpig shareholders will be hoping this is not a cursed business and one which the new owner will regret buying.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
