Apax Partners' $2.54 billion bid for Trade Me has already been good news for investors.
Could it get better? One analyst spoken to by the Herald sees potential for more cash on the table, another says it already represents a high offer.
Earlier today, Trade Me revealed the British private equity outfit had made an indicative bid at $6.40 a share - a 25 per cent premium on the auction site's Tuesday closing price of $5.10, which valued the company at $2.02b.
Shares jumped nearly 19 per cent as the news broke.
Apax has until December 12 to present a binding offer to Trade Me's board.
Will it end up sweetening its offer?
"$6.40 is a good starting point," Devon Funds Management chief investment officer Mark Brown told the Herald.
Why would Apax pay more than a 25 per cent premium for a business that has saturated the online auction market, faces stiff competition in job, car and real estate classifieds, and the encroaching Amazon and Alibaba in new goods, where it's trying to expand?
Brown is not making any firm predictions, but said Apax could up its offer because of Trade Me's market power as an incumbent and because it's attractive as "enormously cash generative and has very little debt".
Forsyth Barr struck a similar theme in a note to clients, saying "[Trade Me] has a leading incumbency position in NZ, generates strong free cash flow, has a lowly geared balance sheet, and offers material leverage to classifieds spend shifting online and increasing yields."
Alibaba could also be in the frame. Brown noted that the Chinese giant "has bought players in other parts of the world rather than start from scratch. You could see someone in the industry making that play."
It's also possible that one of Apax's private equity rivals will bid.
"I hope it goes higher. I'm happy the company has left the door open for other competitive bids … Trade Me has been clever and left themselves a legal loophole for other suitors to counterbid," Brown said.
Trade Me said in a market filing this morning that Apax has exclusive access for due diligence but subject to "a fiduciary carve out that permits Trade Me to engage with third parties should it receive any unsolicited proposals".
Craigs Investment Partners deputy head of institutional research Stephen Ridgewell has yet to deliver his official verdict on the Brits' bid, but he told the Herald that "it's a high offer", going by the multiples.
He said that beyond being 25 per cent above Trade Me's Tuesday close, Apax's offer represents a 26 per cent premium on the company's average post IPO forward price/earnings ratio of 19.
It also represents a premium of around 12 per cent over international peers such as eBay, Seek and REA Group, Ridgewell said.
The $6.40 Apax offer is also north of Trade Me's highest ever close since its late-2011 IPO ($5.61, in mid 2016).
And it is also well above the $6.00 mark one broker said would be the minimum required to get the board's serious attention.
Investors were optimistic on prospects of a deal, with Trade Me shares jumping close to 19 per cent as news of the Apax offer broke.
Trade Me listed at $1.70 and enjoyed strong gains during the first two years after its floatation. But its stock has been static since 2013.
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 $100m via a 22 cents per share special dividend, as the online auction company announced it turned over more than $250m for the first time to deliver a 3.9 per cent increase in net profit for the year to June 30 of $96.6m.
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.