Is PropertyGuru’s delisting good for South-east Asia’s tech scene?

PropertyGuru’s stint as a listed company might soon be coming to an end.

Last week, Swedish private equity (PE) firm EQT offered to acquire the South-east Asian property listings portal for US$1.1 billion.

Upon completion of the deal, which is expected to close in Q4 2024 or Q1 2025 and is subject to approval by regulators and PropertyGuru shareholders, the firm will be delisted from the New York Stock Exchange (NYSE). It will return to being a private company, having spent around three years on the public markets.

The delisting follows layoffs at the proptech firm earlier this year and comes amid a slowdown it is facing in Vietnam. PropertyGuru is also making a big bet on a fintech and data analytics offering it’s scaling up across its four markets – Singapore, Malaysia, Vietnam, and Thailand.

This is the second deal this year involving the take-private of a US-listed, Singapore-founded tech company. In June, business process outsourcing firm TDCX delisted from the NYSE at an offer price of US$7.20 per share.

Such deals raise questions about what effect they will have on investor sentiment toward US-listed South-east Asian companies in the future, along with the implications for the region’s startup ecosystem as a whole.

Not lowball

The offer from EQT seems to be a reasonable one, with the implied price-to-sales multiple being in the middle of other publicly listed property portals.

Two private equity (PE) firms – TPG and KKR – hold a combined 56 per cent stake in PropertyGuru, and they are unlikely to have accepted a lowball offer.

Indeed, as the announcement pointed out, the all-cash offer of US$6.70 per share was at a 52 per cent premium to PropertyGuru’s closing price on May 21, which was the last trading day before media reports on the potential buyout sent the company’s shares up.

However, investors who bought into PropertyGuru when it went public in March 2022 via a special purpose acquisition company merger would have lost money. At the time, the firm was valued at US$1.6 billion – around 45 per cent higher than the current deal value.

In TDCX’s case, the acquisition price of US$7.20 – already raised from the initial US$6.60 – was lower than how its shares had traded for a long period of time.

That said, it should be noted that unlike TDCX, PropertyGuru’s stock traded above the US$6.70 offer price on only a handful of days after it went public.

What’s the gameplay?

Public companies may go private for various reasons – they might no longer need external funding, or they want to avoid having management spend time on fielding quarterly earnings and analysts calls, engaging with multiple investors, and being distracted by large share price swings.

In 2022, Singapore-based gaming hardware firm Razer delisted from the Hong Kong Stock Exchange after a disappointing share price performance as a public company.

A group led by its chairman Min-Liang Tan and including PE firm CVC offered shareholders HK$2.82 (S$0.47) for the shares they did not own, which was 27 per cent lower than the HK$3.88 listing price.

Perhaps the most famous example of a take-private deal for a tech company was Michael Dell and Silver Lake’s privatization of Dell, which netted the billionaire a three-times increase in net worth in under a decade.

PropertyGuru’s management and its new shareholders will hope that by delisting, the firm can focus on building its businesses away from the glare of the public markets. The best-case scenario for investors will be that they capture any increase in valuation in the event that the company is subsequently sold or relisted.

Stepping away from public scrutiny could also let PropertyGuru focus on turning around its Vietnam business as well as bolstering its fintech and data services offering.

Revenue for the first three months of 2024 was down from the previous year for both these segments, while adjusted earnings for each were still negative.

GoTo next?

A precedent of South-east Asian tech firms listing on public markets only to delist after could make investors extra cautious when investing in such companies in the future.

After all, public market investors seem to be taking on risk exposure to the downside, if share prices tank, but might not benefit from the longer-term upside, if the shares are being acquired by insiders or institutional investors before they fully recover.

It is also worth asking whether other South-east Asian tech companies whose shares have underperformed might come next.

For example, GoTo’s shares continue to trade near all-time lows, despite improvements in its financial performance. Might this be the next opportunity for a savvy PE investor to team up with insiders and mount a take-private offer?

With a market value of around 62.5 trillion rupiah (S$5.3 billion), GoTo would be a far bigger fish to catch than PropertyGuru. Yet, with Asia-Pacific PE dry powder of around US$639 billion as of December 2023, a take-private offer for GoTo is certainly feasible from a financial perspective.

PE to the rescue?

Moving away from the public markets, what are the implications of these take-private deals for South-east Asia’s tech and startup ecosystem?

While global IPO markets have yet to revive, and the disappointing share price performance of TDCX and PropertyGuru might seem like negatives for startups, these deals actually show that there are alternative sources of capital out there.

The relevant EQT fund doing the PropertyGuru deal, BPEA Private Equity Fund VIII, was launched in 2022. It came under EQT after the PE firm bought rival Baring Private Equity Asia that year.

The fund, which is still active, has a size of US$11.2 billion, and it has made investments in the healthcare and services sector.

Instead of going public, startups might consider selling to large PE funds in the future. TECH IN ASIA