Freelancer Limited (ASX:FLN) has secured a captive payments service for its freelancing and crowdsourcing marketplace with the acquisition of online escrow services provider Escrow.com for US$7.5 million in cash.
Adding interest, this was funded by an oversubscribed A$10 million placement of shares to institutional investors at $1 million, a premium to the last closing price of $0.995.
Escrow.com had FY2014 gross payment volume of US$265 million, net revenue of US$5 million, US$1.2 million in EBITDA and over US$2.2 billion in transactions to date.
It was founded in 1999 by Fidelity National Financial, a Fortune 500 company, and is the leading provider of secure online payments and online transaction management for consumers and businesses on the Internet.
Escrow.com is the only licensed, bonded and audited secure online solution that protects both the buyer and seller with a 5-step trust process.
It reduces the risk of fraud by acting as a trusted third party that collects, holds and disburses funds according to buyer and seller instructions.
"We are pleased to acquire Escrow.com, the world's largest online escrow company," chief executive officer Matt Barrie said.
"This highly complementary acquisition will enhance the ability of our 15 million users to transact securely, and there are large opportunities for growth and synergies with core offerings.
"Finally, it is a strong cornerstone for entering the payments space."
Escrow.com managing director Brandon Abbey added:
"We are excited to be joining the Freelancer.com group.
"Freelancer's expertise in marketplaces, combined with our expertise in secure online payments are an excellent strategic fit."
The Escrow.com group staff will be continuing with the California-based business.
Escrow.com provides licensed and regulated online escrow services that facilitate and accelerate e-commerce by assuring secure settlement.
Partners include eBay, GoDaddy, AutoTrader.com, Flippa.com and it is also a strategic partner of the U.S. Commercial Service (OTCPK:USCS) in support of President Obama's National Export Initiative designed to significantly grow US export volume.
The service protects both buyer and seller through a 5-step process:
- Buyer and Seller agree to terms;
- Buyer pays Escrow.com;
- Seller ships merchandise;
- Buyer accepts merchandise; and
- Escrow.com pays the seller.
Demonstrating its potential, Escrow.com reported a 9.1% compound annual growth rate from 2010 to 2014.
Freelancer had placed 10 million shares to domestic and international institutional investors to fund the acquisition of Escrow.com and for general corporate purposes.
This was priced at $1.00, representing a premium to last close of $0.995.
No directors or insider shareholders participated in the transaction.
The acquisition of Escrow.com provides Freelancer with a captive payment system, a feature of all major global marketplaces.
It will improve the ability of its 15 million users to transact securely, offering large opportunities for growth and synergies with the company's core offerings.
Notably, it enhances Freelancer's ability to capture more of the value chain and provide value-added services.
Freelancer has recently started reaping the benefits of scale from its global freelancing and crowdsourcing market place platform with cash receipts in the first quarter of 2015 up 8.2% from the previous quarter and positive cash flow of $1 million.
This has allowed it to benefit from a relatively fixed cost base once a user base is established, enabling more revenues to drop to positive cash flow rather than eaten up in expenses.
Highlighting the significant upside and potential scale for Freelancer, McKinsey Global Institute noted that 160 million jobs, or about 11% of the projected 1.46 billion services jobs worldwide, could in theory be carried out remotely, barring any constraints in supply.
The company has also dealt itself into the local jobs specific marketplace, which could increase its Total Addressable Market to several hundred billion dollars per annum.
Freelancer had a strong cash balance of $22.1 million as at 31st March 2015.
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