The co-founder of leading Australian online retailer DealsDirect has cheekily paid tribute to Gerry Harvey for raising the profile on his sector after the James Packer-based Ellerston Capital bought a minority stake in the business.
“Maybe we’ve got Gerry to thank again,” co-founder Paul Greenberg told SmartCompany.
“He’s got the big end of town interested and we’re one of the beneficiaries.”
While the size of the stake and the investment has not been disclosed, reports suggest Ellerston has bought a third of the business for about $10 million.
Greenberg says he has fielded offers from potential investors and acquirers since the middle of last year, with traditional offline retailers and media companies the main suitors.
But neither group was the right fit.
“Traditional offline retailers couldn’t fully relate to what we are doing and those guys have got their own challenges. And we’ve got a warehouse full of stock that the media guys couldn’t really get their heads around.”
But when Ellerston Capital managing director Martin Dalgleish made his approach in late 2010, the parties hit it off.
“These guys are not in the business of running businesses. They are about investing in good businesses and good people.”
Dalgleish will join an expanded board, as will independent director Naseema Sparks, a marketing expert and the former managing director of M&C Saatchi.
“We’ve got two real plums sitting on the board with new eyes and fresh legs.”
Greenberg says the investment of Ellerston will allow DealsDirect to accelerate what he admits has been a fairly careful growth path so far.
The first focus is to fund the development of the company’s new deal-a-day website Deal Me, which was launched in February.
Greenberg says the site – which offers a deal on one product a day and is a mix between traditional deal-a-day sites and the new army of group buying sites – is a “real little mongrel and it’s growing so quickly”.
Secondly, Greenberg wants it known that he is now on the hunt for acquisitions. This could include smaller sites in categories that DealsDirect already covers, or acquisitions in new areas.
“We are starting to prowl for businesses that have adjacencies or similarities. We could buy and run them or drop them into our existing business.”
Greenberg, who worked in the physical auctions sector before starting DealsDirect with Mike Rosenbaum in October 2004, says he has “half a beady eye” on the online auctions space.
“I quite like what the guys at Grays Online are doing.”
He says he will also be looking for opportunities for “strategic roll-ups” in sectors where “businesses are running out of puff”.
He nominates the broad “experiences” category – that is, retailers selling spa treatments, tourism services and hospitality services – as one sector where there are “too many players” and potential acquisition opportunities.
However, Greenberg says DealsDirect will be extremely wary of paying high prices for assets given the sharp rise in tech sector valuations.
After living through one tech wreck, Greenberg is worried about what he sees is a market getting too hot too quickly.
“We won’t get caught up in this land grab mentality. People are throwing everything but the kitchen sink at these deals and I think that people are going to get hurt – customers and investors.”
The arrival of Ellerston Capital on the DealsDirect share registry will mean that Greenberg and Rosenbaum will need to start thinking about engineering an exit for their investors.
That could eventually lead to DealsDirect becoming one of the few pure online retailers on the Australian Securities Exchange.
“I think an IPO or a trade sale is probably where their mind is at,” Greenberg says.
“They are definitely in the business to get a return on their money. They probably see that in the next three to five years, probably closer to five years because we’ve got so much to do.”
“This is not an exit strategy for Mike and I. We are in this for the long haul.”
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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