Media company Fairfax Holdings is to buy internet auction site Trade Me for $700 million in cash.

An additional $50 million will be paid if the company meets certain earnings targets over the next two years.

Trade Me's founder and chief executive Sam Morgan will continue to run the business.

The deal, which is subject to final due diligence and regulatory approval under the New Zealand Overseas Investment Act, is expected to close in April.

Fairfax chief executive David Kirk said the purchase would add more diversity to the media company.

"The strong revenue and earnings performance of Fairfax Digital in Australia, together with today's acquisition of Trade Me in New Zealand, and other online opportunities that we are pursuing, are coming together to give Fairfax a higher growth profile," he said.

Mr Kirk said Trade Me would operate as a standalone business, and its advisory board would be made up of current Trade Me directors and Fairfax executives.

The purchase will be funded through a mixture of debt and equity.

Mr Morgan founded Trade Me in 1999, at the age of 23. He will be contracted to stay at Trade Me for the next one to two years, and if he then moved on, would face ongoing restraint of trade conditions.

Trade Me is the most visited website in New Zealand. It has 1.2 million members who are expected to host 35 million auctions this year.