HeadHunter - Complementary Acquisition; Gaining Strength in the Regions

HeadHunter yesterday announced that it had agreed to acquire Zarplata.ru, a Russian online recruitment platform, for R3.5 bln in cash. The deal implies a 2020E EV/EBITDA multiple of 11.4, below HeadHunter's 2020E EV/EBITDA (25.6 on our estimates) and the global peer average (22.0). We consider the deal to be complementary and value-accretive: it will strengthen HeadHunter's positions in the regions and among blue-collar workers. The FAS has already approved the deal, which should be closed by the end of January. We reiterate our BUY rating and target price of $26.47 per share.> The deal should strengthen HeadHunter's positions in the regions and the blue-collar segment. Zarplata.ru is a regional job classifieds platform focused on the blue-collar segment. The revenues it generates in its key regions (which include Siberia and the Urals) are comparable with HeadHunter's revenues in the same areas. In 2019, the company had around 58,000 clients, a large number of which were local SMBs new to HeadHunter. Zarplata.ru has high local brand recognition, which translates into a significant share of organic traffic. Following the closure of the deal, Zarplata.ru will continue to operate as a separate brand with its own technological platform.> Attractive price. HeadHunter will pay R3.5 bln for Zarplata.ru, or a 2020 EV/EBITDA of 11.4, which implies a 55% discount to HeadHunter, on our estimates, and 48% discount to the global peer average. It will finance the acquisition via new debt (either a bank loan or public bonds).> Entails medium-term synergies on both revenues and costs. We believe the acquisition will create opportunities for cross-selling between the two platforms and enable Zarplata to upsell to HeadHunter nationwide clients. We also expect the deal to bring cost optimization and economies of scale, primarily stemming from marketing and other costs (SG&A costs excluding marketing and personnel costs). HeadHunter spent 13% of revenues on marketing last year, 5 pp less than Zarplata.ru; for other costs, the respective figures were 9% and 6 pp. HeadHunter expects Zarplata.ru to generate around R760-780 mln (10% of HeadHunter's total revenues) and EBITDA of around R310 mln this year, which would be around 8% of HeadHunter EBITDA (a 40% margin versus 49% for HeadHunter).