Allegro Makes $1 Billion East Europe Expansion to Rebuff Amazon

(Bloomberg) -- Poland’s dominant e-commerce platform, Allegro.eu SA, agreed to buy a Czech peer for $1 billion, gaining a foothold in promising east European markets at a time of intensifying competition from Amazon Inc. on its home turf.

The acquisition of Mall Group and logistics company WE|DO in a 881 million euro ($1 billion) cash-and-stock deal will give Allegro access to 32 million people in countries including Hungary, Slovakia, Slovenia and Croatia, almost doubling its reach compared with Poland’s market.

The transaction will help the the Poznan, Poland-based company bulk up and try to fend off a growing threat from Amazon, whose entry into Poland this year drove Allegro’s stock price to a record low. Its shares jumped as much as 10% on Friday.

“In the region there’s no one-stop shop yet,” Allegro Chief Executive Officer Francois Nuyts said at a conference call with analysts on Friday. “By using the merchant base we can massively game-change what is on offer for consumers.” 

The deal gives Allegro first-mover advantage in markets where e-commerce is still in its infancy and global giants like Amazon don’t dominate. Tomasz Sokolowski, an analyst at the brokerage arm of Santander Bank Polska SA, said that while the transaction price is “attractive” and allows Allegro to tap new markets, the company purchased an unprofitable entity operating at much lower margins.

Online sales account for 10% of retail market in the countries where Mall operates, compared with 15% in Poland and over 20% in the U.S. and the U.K. Allegro expects the market to almost double to 100 billion zloty ($25 billion) over three years.

‘Turbo Charge’

It plans to boost the Mall’s customer traffic, which currently has 5 million active buyers compared with 13 million at Allegro. The gross merchandise value per customer at Mall is currently at 800 zloty per year, compared with 3,000 at Allegro. The GMV of the new unit is set to rise by an average of 30% per year in 2022-2025, the Polish company said in a presentation.

“When we do the transformation and turbo-charge the marketplace, we’ll hopefully get the frequency increased,” Allegro’s Chief Financial Officer Jon Eastick said.

Allegro will finance the deal with 473.5 million euros in cash and 407.5 million in new shares. It plans to issue new equity, adding as much as 3.33% to outstanding shares. The company will also raise about 200 million euro, “most likely” from the sale of bonds, according to Eastick.

The company said the transaction should close in the first half of next year following regulatory approvals.

The purchase price is not a “bargain” but still seems “reasonable,” said Wood & Co. analyst Lukasz Wachelko. “The transaction gives Allegro a chance to grow in less penetrated markets than Poland, where competition is fierce.”

©2021 Bloomberg L.P.