GoCompare (GOCO) has rejected a 110p-a-share offer from fellow price comparison company ZPG (ZPG) – formerly Zoopla. It’s the second time this year the property specialist has attempted to buy its insurance-focused peer, last making an identical bid in May. On both occasions, management at the target company said the proposal “fundamentally undervalues” its website.
Based on the share price, that’s a fair point. GoCompare’s shares traded above the offer as recently as mid-October and have only stumbled very slightly since then. That said, on an enterprise value to adjusted cash profit valuation of 13.1 times, the offer looks more generous. ZPG recently spent £80m on GoCompare’s peer money.co.uk in a deal which valued the target at 10 times enterprise value to cash profits (Ebitda).
On paper, a tie-up looks sensible. Zoopla and GoCompare hold dominant positions in different areas of the fiercely competitive price comparison website market, but at their core are very similar businesses. Working together could help cut down their exorbitant marketing requirements: the two groups spent 32 per cent and 60 per cent of their revenue respectively on marketing during the first six months of the year.
