Trade Me says it has received a $2.54b buyout offer from a UK private equity company Apax Partners - representing a 25% premium on its closing price yesterday.
The $6.40-a-share offer is indicative and non-binding, the company said.
The deal is subject to due diligence, and Trade Me is open to rival offers before Apax presents its binding bid on December 12.
If Trade Me does end up being bought by Apax, it will be delisted from the ASX and NZX.
Trade Me shares soared 18.8 per cent to $6.06 on the NZX this morning after the takeover offer was revealed, valuing the company at $2.4b.
One local broker has told clients this morning that a bid north of $6 per share would be necessary to get a deal over the line, given Trade Me's forecast profit growth for 2019.
Apax has raised €42.7bn in funds over its 30-year history.
Other Apax investments include Israel-based Global-e Online, which provides cross-border e-commerce solutions, Genius Sports, a British-based sports data company, SoYoung, the largest online marketplace for aesthetic medical treatments in China, MatchesFashion.com, a British-based predominantly online global luxury goods retailer, and Moda Operandi, a British-based online luxury fashion retailer.
Trade Me's stock was up 7 per cent for the year before this morning's news it was at $5.08, below its 2013 high of $5.20.
Trade Me dominates the second-hand auction market but faces stiffer competition in areas like classified advertising and new goods sales where it's seeking growth. In the latter, it faces encroaching competition from Amazon and Alibaba.
Long-time chief executive Jon MacDonald announced his intention to leave the company in June.
At Trade Me's annual meeting on November 8, chairman David Kirk told shareholders the board was down to a shortlist of two (un-named) candidates to replace MacDonald.
Kirk gave no timeline for making a decision but said it could be before Christmas.
On August 22, Trade Me said it was distributing $100 million via a 22 cents per share special dividend, as the online auction company announced it turned over more than $250 million for the first time to deliver a 3.9 per cent increase in net profit for the year to June 30 of $96.6 million.
Devon Funds Management's Mark Brown says the Apax bid "validates our long-held investment view regarding the excellent cash generative nature of Trade Me's business model. This was highlighted to the market earlier in the year when the company returned $129m in fully imputed dividends. The strong competitive position and excellent cash flows of TradeMe are clearly what appeals to Apax Partners, a pure-play leveraged buyout firm".
The company was founded by Sam Morgan in 1999.
Morgan sold it to Fairfax in 2006 for $700m. The Australian publisher, in turn, floated Trade Me in late 2011 at a $1.07b valuation.