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Has Carsales paid too much to buy Trader Interactive?

Has Carsales paid too much to buy Trader Interactive?

Since its founding in Melbourne in 1997, carsales.com (ASX: CAR) has grown its footprint to now operate in digital marketplaces across Oceania, Asia and the Americas. This has largely been done via acquisitions. However, I’m scratching my head over its recent acquisition of the US marketplace, Trader Interactive. To my mind, they have simply paid too much.

Back in 2010, I wrote Value.Able – How to value the best stocks and buy them for less than they’re worth. In a chapter on the importance of understanding quality in companies, I explained how to think about acquisitions and referred to the danger of focusing on earnings accretion and synergies, while ignoring the deleterious impact on value from diminishing returns on equity.

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Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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