Kmart owner Wesfarmers to buy Catch Group for $230 million in bid to bolster e-commerce

Kmart and Target owner Wesfarmers has struck a deal to acquire fast-growing e-commerce business Catch Group for $230 million.

The deal, still subject to competition regulator approval, will thrust the retail conglomerate into the competitive but lucrative marketplace scene, where competitors such as Kogan, Amazon and eBay are fighting for consumer dollars.

Wesfarmers has been looking for an investment opportunity for some time in the wake of its demerger of Coles supermarkets last year, and managing director Rob Scott said on Wednesday Catch had a “high calibre” management team and “quality” fulfilment assets.

“[It’s] an opportunity to accelerate Wesfarmers and Kmart Group’s digital and e-commerce capabilities whilst continuing to invest in the unique customer and supplier proposition provided by Catch Group,” Scott said in a statement circulated to investors.

Aside from generalisms about possible synergies, Wesfarmers was relatively tight-lipped on its plans for the business on Wednesday, but did say it will operate as an “independent business unit” within the company, overseen by Kmart Group (Kmart and Target) managing director Ian Bailey.

By the numbers, Catch is an attractive grab for Wesfarmers, boasting $240.9 million in revenue in 2017 and $13.7 million in earnings before write-downs associated with deals it closed in the same year, according to documents filed with the corporate regulator.

Catch’s established position in the e-commerce market, including a marketplace which chief executive Nati Harpaz said last year was clearing $2 million a week in 2018, is also an ample platform for Wesfarmers to further strengthen its legacy department store businesses.

Bailey highlighted supply chain benefits when describing the deal, suggesting Catch’s two Victorian fulfilment centres, regarded by many in the industry as state of the art, is an attractive prospect for Wesfarmers.

Kmart has blazed a trail in vertical sourcing in recent years, reaping the rewards in rock bottom prices and sustainable margins, but sister business Target has had a comparatively difficult time keeping pace.

“This will drive best practice in supply chain, fulfilment and online execution across our brands, including opportunities for Target to secure online fulfilment capability and productivity benefits,” Bailey said in a statement circulated on Wednesday.

For Catch, Bailey said, “the support of Kmart Group’s scale and capabilities” will support its existing marketplace business.

Catch has become a popular option among businesses looking to clear stock in recent years, which is part of the reason the company is able to offer such sharp prices. Kmart and Target have no shortage of distressed inventory, making the e-commerce platform a natural partner.

Catch managing director and chief executive Nati Harpaz declined an interview on Wednesday, while neither company has confirmed yet whether he will stay on under Wesfarmers.

“Catch will continue to deliver innovation in the online market in Australia, with the focus of delivering great value and savings to our customers,” Harpaz said in a statement.

Catch founders Gabby and Hezi Leibovich, who started the now prominent online retailer as a daily deals website in 2006, stand to walk away from the Wesfarmers deal with a fair chunk of change.

In recent years the pair, alongside Harpaz, have been leveraging the company’s brand value to expand into a range of services, including phone and internet plans.

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