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Spreets sold to Yahoo!7 for $40 million: What does this mean for online retail and the future of Australian media?


This morning, it was reported that Yahoo!7 has acquired Australian group-buying business Spreets for $40 million. The deal is the first of what is expected to become a consolidation of the Australian group-buying market.

However, what’s truly remarkable about this announcement is the short time-frame between Spreets’ launch and its sale — 10 months, in fact.

Could this be the most profitable website flip in Australian history? And what does this deal say about the future of digital media?

What’s the big deal about group deals?

Last year, group-buying fever hit the Australian internet community, following the astonishing rise of Chicago-based group-buying behemoth Groupon, which knocked back a reported $6 billion acquisition offer from Google in December.

At around this time, Amazon invested $US175 million in LivingSocial, the world’s number two player.

First among the Australian group-buying companies to stake their claim in the local market was Spreets,  which launched in March 2010 and claims to have acquired 500,000 members and facilitated the sale of 274,000 vouchers in the time since. This clearly places it among the Australian leaders, alongside Jumponit, LivingSocial, Nine Entertainment Co.-owned Cudo and Scoopon.

Spreets has 52 members of staff and said it was planning to add more following the deal, which includes the site’s New Zealand operations and will see the site integrated into the Yahoo!7 Network as well as its joint venture partners Yahoo! and the Seven Media Group, including marketing and promotions.

However, its current size and today’s announcement belies its humble beginnings.

How did Spreets get off the ground? [The Spreets Story]

In what is likely to become Australian dotcom folklore, Spreets has turned a handful of dollars (and a truckload of gusto) into one of the fastest and most profitable flips in local internet history.

Among the first stops in his entrepreneurial journey, Spreets Founder Dean McEvoy paid a visit to Sydney-based digital incubator Pollenizer.

A startup in its own right, Pollenizer is less than three years old, providing advice, contacts and basic administrative support to nascent yet promising Australian internet businesses.

Founded by Phil Morle and Mick Liubinskas, the company has 18 portfolio companies (including Anthill 30under30 honoree Nikki Durkin’s 99dresses.com), 125 employees worldwide, $10 million raised and $50 million in valuation.

It was a Finalist in Anthill’s 2010 Cool Company Awards and, in its own words, described its purpose as follows: “We will be there from idea inception to launch and forward, with our team helping every step of the way.”

And it achieved all this with less than $1,000 in initial funding.

It’s no wonder that McEvoy came knocking.

According to Anthill sources, Pollenizer acquired an equity stake of “around 10%, that may have been diluted since”, in return for its services, including an introduction to Innovation Bay and a pitching opportunity at one of Innovation Bay’s angel dinners.

This pitching opportunity, in front of approximately 50 investors in a Sydney restaurant, apparently led to a formal offer of startup funding of between $25,000 to $30,000, for an undisclosed amount of equity, thanks to a “young retail veteran”. (It seems that you can be both “young” and a “veteran” nowadays.) And this introduction prompted further interest and the investment of approximately $2 million in additional capital from multiple investors.

McEvoy’s original pitch that got him the gig at the Innovation Bay dinner can be viewed here.

How does this sale compare to other local deals?

Much is likely to be written, said and tweeted about the deal in the next 48 hours.

In particularly, pundits will be tempted to compare the deal to other recent tech company transactions from Australia’s recent past.

So, how does the sale stack up? Picking through the Anthill archives, three deals stand out.

Atlassian: $60 million

In August of 2010, Australian-born wiki-business Atlassian, which Scott Farquhar and Mike Cannon-Brookes founded in 2002 as 22-year-old university students with personal savings, became the recipient of a US$60 million venture capital injection from Silicon Valley venture capitalists Accel Partners.

At the time, this was regarded as Australia’s most significant private equity transaction for some years — since 2008, in fact.

Aconex: $107.5 million

At the height of GFC-mania, Aconex – an Australian information management company servicing the global construction and resources markets – secured a $107.5m investment from US private equity firm Francisco Partners.

Chairman Martin Hosking would not reveal the percentage of equity surrendered in the deal when we interviewed him at the time, saying only that Francisco Partners took less than a controlling interest.

However, neither of this deals, Atlassian nor Aconex, involved an outright sale.

RetailMeNot: $90 million

In December last year, Australian coupon aggregation website RetailMeNot was acquired by WhaleShark Media, a fund developed to roll-up coupon-driven websites, for a reported US$90 million.

That business was launched only four years ago, employing startup capital of just $30 (for domains and hosting) and did not require any external capital, funding its growth through profits.

At the time, I interviewed RetailMeNot co-founder Guy King (watch the video) and, as a result of that discussion, now suspect that $90 million actually falls short of the true acquisition figure — a suspicion that King will neither confirm or deny.

Given King’s apparent disinterest in the trappings of wealth, this deal will likely be remembered for more reasons than the staggering sale price. (When I asked King, post interview, whether he’d be interested in investing in other private technology ventures, he modestly replied, “I just like to code.”)

Further, it seems that King had no intention to sell, from the outset, despite numerous approaches during his four year journey.

So, is Spreets Australia’s greatest web-flip of all time?

Whether you approve of the term ‘flip’ or its connotations, there is always something remarkable (and not-so-strangely enviable) about a business (and its founder) that can go from launch to sale in less than a year and for a significant sale price.

It’s remarkable because it’s rare. Yet, it also conjures double-edged expressions like ‘overnight success’. And puts an unnecessary burden on the seller to justify the sale and their motivations for starting out in the first place. (Were they only ever in it for a quick cash-grab?)

Most of this positioning is irrelevant. Because most repeat entrepreneurs (successful ones anyway) understand that such outcomes can’t be planned (despite their mandatory place in that initial dust-covered Business Plan under the section labeled ‘Exit Strategy’).

And smart entrepreneurs also understand that any purchase offer should never be ignored.

And what does it all mean for digital media?

While this announcement is likely to trigger another wave of group-buying website launches, the development actually says more about the future of media than it does about the state of Australia’s digital industry.

In particular, the move demonstrates a growing interest among larger Australian media companies in the potential of direct retail sales as an alternative to more traditional revenue streams, such as advertising.

As retail companies begin to make the transition from ‘paid’ media to ‘owned’ media, they will not only become less reliant on traditional media to disseminate their message, they will acquire the potential to usurp the news gathering functions of these established players.

In other words, if traditional media can’t sell advertising and are forced to compete with news-gatherers funded from the direct sale of products and services (rather than via the cross-subsidy model that has fueled media empires for generations), how will they survive?

Today’s announcement offers a clue.

And the good news for business builders is that it’s likely to be the first of many.