Good day, ladies and gentlemen, and welcome to Auction Technology Group webcast. At this time, all participants are in listen-only mode. After the presentation, we will conduct a Q&A session. If you wish to ask a question, you may do so either through the Zoom webinar link provided separately or by submitting written questions using the Ask a Question button on the Spark Live webcast page. If you have joined us via Zoom webinar, please note this call is being live-streamed to a webcast for a wider audience and will be recorded. During the Q&A element of this call, if you wish to ask a question, we ask that you please use the raise hand function at the bottom of your Zoom screen. If you already have a question, please do this now, ready for when the Q&A begins.
I would now like to hand over to John-Paul Savant, Chief Executive Officer, to open the presentation.
Thank you, and welcome to ATG's announcement of our acquisition of Chairish. By way of background, ATG, as you know, has the ambition for transforming the markets for both art and antiques, and industrial and commercial. To do this on the art and antiques side, we really believe that you need to have auction and list price under one roof. The key reason for that is that that enables the addressing of a full range of buyer needs.
People don't just wake up in the morning one day and say, "What am I going to buy online at auction today?" They're more often saying, "What am I looking to buy that's unique and specialized?" They may be looking at auction, they may be looking at fixed price, and we believe that by having both under one roof, we're able to address more needs, and that can result in accelerated growth for both businesses and share shift. Really, when you look at the presentation, if you can go to the next slide, there are really three main reasons why this deal excites us. The first is that it greatly strengthens our marketplace position. We get more supply, there's more demand, and that in turn accelerates the flywheel.
The second reason is because it is a great opportunity for us to execute our marketplace playbook, which enables us to run Chairish at higher margins than it's operated at, and with real growth opportunities in the future. It's not dissimilar to what we've done with ESN, where we were able to take a business that was growing about 7 or 8%, and it delivered two years where it was growing over 20% and still well ahead of the group today. The third reason is that for many of you who've been investors since the beginning, you know that one of the big ambitions we've had at ATG is to really transform and innovate around the entire buying experience for the secondary goods market. Again, in this particular case on the art and antiques side, the real opportunity there is around how you monetize the underbidder.
I'll come to that a little bit later on how this enables us to do that more effectively. If you turn to the next slide. Just a quick view of Chairish at a glance. They bring to ATG $ 1.3 million active items. That goes along with the $ 14.1 million items in art and antiques that ATG already has. It's $ 4.1 million accounts going along with the $ 6.7 million that we have, $ 4.5 million monthly sessions along with the $ 25.5 million that we have in art and antiques, and $2.6 billion in additional inventory available now compared to the $5.6 billion that ATG has on a normal basis on the art and antiques side. If you go to the next slide, the key thing here is that marketplaces thrive on offering unique supply and the largest source of demand.
When you have those two things in place, that's what allows you to generate that flywheel, which allows you to acquire more inventory cost-effectively and critically even more buyers cost-effectively. As you know, one of the key successes for ATG over these years has been the ability to acquire new buyers very cost-effectively with a low CAC, and this we believe will further enhance that. How does it do it exactly? As I said, first on the supply side, it adds $2.6 billion in inventory, $ 1.3 million high-quality items, and 12,000 sellers to our network. It adds inventory specifically in categories where ATG has high interest but did not actually have as much supply as we would have liked. On the buyer side, it expands it to $ 4.5 million monthly sessions, over $ 1.5 million social media followers, and increases buyer choice.
Buyer choice not only in terms of that inventory, but in terms of the form of that inventory, because that $2.6 billion that Chairish brings is available immediately to a buyer without having to wait for the next auction or wondering whether they're going to have to be outbid by somebody else in that process. The fourth part of the synergies, as we said, come from running that marketplace playbook. The last part here that gets us excited is the fact that, again, in this fragmented market, there's 3x the TAM in the fixed-price as there is in auction.
This gives us now a direct entry into that space where we believe, as I said, we differentiate not just the opportunity for the buyers who used to buy with us at auction, but for those buyers who are buying from Chairish at fixed price, it now gives them the option of looking at auction as well if they have more time and if they're looking for a better deal. As I said at the start, this acquisition really is exciting for us across three specific horizons. In year one, the real focus is really on optimizing the margin of Chairish. We have worked with specialized consultants in these areas, including Boston Consulting Group, to come to $8 million in very high-confidence synergies that we can execute on in the first year. I'll go into a little bit more detail on those on the following slide.
The second part, as I said, is executing the marketplace playbook, and that is really around doing what we've done at Estates Hills Donnut or when we bought PropSubit or when we bought BidSpotter or Latissimo, where we were able to bring in best practice that we've gotten from running multiple marketplaces. In this case, we will be leveraging our cross-listing product to bring more bidders, bring in the partner networks so that Chairish gets much more exposure than it's been getting for its inventory. We plan on executing our digital marketing plan, where again, it's the path by which we sell digital marketing to the sellers on Chairish, the 12,000, to try and bring more revenue for us, but more bidders for them.
The other part is really around payments, where we will be adjusting some of their payment margin similar to what we've done at Live Auctioneers and where that has gone well. The third wave of the opportunity here is really around the transformational growth. Monetizing the underbidder is something you've heard me talk about multiple times before. The real opportunity here is seeing how do you take advantage of all that untapped demand on the auction side and give it access to an immediately available product. I'll give you a couple more details on that in the succeeding slide, but these are really the three waves of growth that we see for ATG coming out of this acquisition. Next slide, please. Where do the synergies come from in year one? We see immediately $3 million- $4 million in cost savings from headcount and people.
There's $2 million- $3 million from rationalizing the marketing channels. I know what always comes up for people is, if you rationalize marketing, what will happen to your growth? What we've identified in the due diligence is that, again, there's $2 million- $3 million of marketing where we believe the return is relatively low. With the ATG cross-listing opportunity and the other things we're able to do by sharing Chairish's inventory across our base, we believe that we can replicate the money that they were spending on the PPC and elsewhere and actually bring more bidders than they were getting before. We don't believe that there will be any drop-off and in fact could accelerate their growth further. The last one is $2 million coming off of simply adjusting their take rate on payments to the level that we have the rest of our group at.
That's something that we've been able to do successfully at this rate and feel very high confidence that we can do here as well. The initial focus, again, this is the focus for that first year, and then we will be looking at some of the other opportunities in the future. The first area that I talked about in terms of executing the playbook, I talked about ATG Excel, which we'll be doing, connecting them into our partner network and the other marketplaces. The big actionable area that we see in year one is really around the digital marketing or what we call the AMP product, the Auctioneer Marketing Program. In this case, it's simply going to be the Seller Marketing Program.
Today, just to give you an idea, we didn't put an index on the left-hand side for this, but just to give you an idea of the scale that we're talking about here, today Chairish is about half of LiveAuctioneers on a dollar of marketing sold for every dollar of GMV. There is an opportunity there. When you look at LiveAuctioneers' clients that are most similar to Chairish, they're actually underselling marketing by a factor of about 5X compared to what we've achieved with our retail clients. We did a benchmark to see how Chairish was comparing against other comparable companies like eBay and Etsy. You can see it's somewhere between they're selling about half to one-fifth of the amount of marketing to reach buyers that those other channels are able to achieve.
We believe that the combination of implementing the playbook that we've implemented elsewhere in our marketplaces, combined with the fact that we're able to say to Chairish's sellers, "You're going to reach a much broader array of buyers than you've ever reached before," gives us very high confidence we can execute on that digital marketing playbook. The next slide. For me, one of the most exciting parts of this acquisition, beyond the fact that it makes us a stronger marketplace and that lets us implement the playbook, is it really puts us in a much better position to execute on the transformative growth opportunities that you've heard me talk about for the last three to four years. The key thing here is that $2.6 billion of inventory is available immediately to a potential buyer.
The way that we see this is that really it's enabling us to capture the demand that auctions leave behind. At present, we have 180,000- 200,000 winners per year, but we have $ 17 million unconverted bids that now have the opportunity to be monetized by presenting them with buy-it-now inventory. As you can imagine, you're bidding in an auction, you don't win, we know who bid $4,000, we know who bid $3,800, $3,600, $3,400, and now we will have $2.6 billion of inventory that we can present to those people as something that's available now. This is really an exciting piece for us. It's not going to be happening year one, probably more towards the end of year two or year three, but the opportunity here is absolutely massive. Next slide. Over to Sarah.
Thanks, John-Paul. I'll talk through the financial considerations for the deal. As you will be aware, we've paid $85 million purchase price on a cash-free, debt-free basis for the business. We believe that this acquisition will generate really compelling financial returns. In the medium term, we see that under our ownership, Chairish will be delivering double-digit revenue growth and adjusted EBITDA margins of around 30% for the medium term. That really comes from two places. It comes from a significant amount of cost synergies that are extremely high confidence, and it comes from the revenue benefits of executing the playbook model going forward, including things like marketing revenue, etc. Just to kind of pull those out a little bit from a cost synergies, John-Paul's talked about the $8 million of high-confidence cost synergies, which we will have fully delivered by financial year 2027 and partially deliver through 2026.
We believe that gets us on broadly similar revenue to about a 15% margin. As John-Paul said, they are largely around people costs, marketing, and monetizing our payments solution in the way we've already done on Live Auctioneers. The remainder of the growth opportunity and the incremental margin comes from the significant revenue benefits, particularly around the marketing playbook where we see opportunity for higher margin growth in areas such as the marketing program. All of that leads us to being confident in positive adjusted EBITDA for financial year 2026 and being accretive to our earnings per share in financial year 2027, and a return on invested capital material ahead of our weighted average cost of capital by 2028. In the medium term, as I've already said, getting us to double-digit revenue growth and adjusted EBITDA margins of around 30% for the medium term.
In terms of funding, we have fully funded this acquisition from both cash on our balance sheet and our existing revolving credit facility, so we're fully funded through existing drawings. In order to ensure that we've got material liquidity and flexibility, we have also extended our revolving credit facility by another $75 million with the existing syndicate of banks and on the same terms as our current RCF. That increases our overall RCF commitment to $275 million. All of that means that adjusted net leverage post the acquisition on a pro forma basis will be around 2.3 times. As you know, we're a fairly stable cash-generative business. We will be focused on deleveraging in the coming months and the financial year ahead. That is well within and comfortably kind of far away from our covenants. We feel pretty comfortable with that level of leverage.
As I said, we will be then focused on the cash generation that we normally have and delivering the business on that basis. The final thing just to say is that in a similar way to the ESN acquisition, we will be reporting the Chairish, Inc. business in our A&A segment going forward from an ongoing reporting perspective. I think with that, I'll hand back to John-Paul to wrap up.
Okay, just final slide. A recap here again. Hopefully, you can tell that, you know, again, I'm incredibly excited by this acquisition for all the different things it does. To repeat that, it strengthens the marketplace flywheel in a material way. Rapid, high-confidence synergies that enable us to deliver growth and a compelling financial return. Executing the marketplace playbook, which we believe helps us take this business forward at a faster growth pace than it's been going. Finally, the transformative growth opportunity by monetizing the underbidder and leveraging the data that we would then have between auction and the fixed-price format in that $2.6 billion of inventory. With that, we will wrap it up and take any questions that people have.
We will now begin the webinar question and answer session. If you are participating in verbal questions, please use the raise hand feature in the Zoom webinar at the bottom of your screen to ask a question. If you have dialed in by phone, please press star nine to raise your hand and star six to unmute. If you would like to submit a written question and are watching via Spark Live, please use the ask a question button. We'll take our first question from Lara Simpson of JP Morgan. Please go ahead.
Morning all. Thank you for taking my questions. I just have two really. I suppose the first would just be, John-Paul, to talk a bit about the timing of the acquisition and considerations there. I think clearly the market feels it may have been a bit too soon to execute on a deal. Just your thoughts around that. I suppose still with the acquisition, obviously you're talking about double-digit growth over the midterm. Can you maybe just give a bit of color on how performance has been, I suppose, pre-pandemic, what sort of a normalized run rate they were delivering there, and then how you think about the cyclicality of that portfolio? Should it be similar to A&A or could it be a bit more sensitive? I also just wanted to ask a bit on the trading update because you've obviously given a bit more color on Q3.
Clearly top line feels a little bit softer, which is maybe somewhat more understandable, but obviously you've had quite a steep cut to the margin now guiding 42%- 43%. Sarah, maybe you could just talk around the moving parts on the margin downgrade and then how we should think about recovering the core margin in 2026 and 2027. Thank you.
Okay, so I'll cover the first part and then turn it over to Sarah. In terms of the timing, this is one of those things where, as you know, we've been saying that ATG is looking to transform this industry. One of the things that, as I said, we felt that you needed to have was having the opportunity to have auction and list price under one roof is a pretty spectacular opportunity. To get $2.6 billion of inventory and 12,000 sellers is not something that comes along every day. The timing of this is that the bankers for Chairish, Inc. made us aware of the fact that they were running a process and that therefore we began exploring it with them earlier this year and then decided to pursue it.
You may say that the timing is not exactly perfect because of needing to focus on some of the operational things. This doesn't detract from anything that we're actually doing on the operational front. We still have the bandwidth to do that. In fact, it contributes to a lot of what we've said that we're aiming to do. As you know, we have the value-added services that we've been growing. The area that we've been looking to demonstrate more proof on is driving conversion rate. Based on that, we have the investment going in around search and discovery as well as the conversion rate optimization. We believe that having Chairish, Inc.
actually accelerates our ability to convert because you now are going to give people an even bigger reason to come to both our auction business as well as our fixed-price business and the opportunity down the road to be presented with inventory that you can't get anywhere else. If you bid online at ATG for an item and lose, we will be able to present you with a fixed-price item that's available now. That's something that no other competitor would be able to do. For us, the opportunity was here. We think it's the right time to buy it. For both the business itself and for what I think it does to drive that core metric that people are focused on, I'm happy with what we've done right now.
In terms of the type of business it is, right now we'd say it's very similar to our A&A business in terms of the sensitivity. The price range that they sell in is typically in that same type of zone that we've been selling in. Right now we are not believing it's going to be exceptionally more sensitive than the rest of our business. That's something we'll learn more about over time. With that, I will turn it over to Sarah to talk about the trading side.
Yeah, thanks, John-Paul. Thanks, Lara. Just to answer your question around the sort of the Chairish business and its historical performance and our level of confidence going into the future first. The business did see good growth coming into COVID and has been broadly flat since COVID with some of the disruption that coming out of COVID has entailed. The reason we are confident in the double-digit growth is really because we see the benefits of having effectively Chairish bought into our network. We've got more buyers, more sellers, and a significant amount of the traffic that we'll generate, which is currently being done through paid marketing, will come through our buyer and seller network, as well as things like our auctioneer marketing program, etc., which will really drive that marketplace flywheel we think is a material opportunity.
We are being reasonably sensible about the first year being a bit slower from a growth perspective while we focus on the cost synergies, which we feel very confident about, marketing as we've talked about being one of them. That's how we sort of think about the business, the Chairish business going forward. If I switch to your question on trading, and in particular the margins, I'll just context it with revenue first of all. We've obviously said that we've seen a slightly improved growth rate in Q3 from a revenue growth perspective, our actual rates largely driven by shipping outperformance driving the A&A segment and some benefits from FX as well. That's what we've said in terms of revenue.
Clearly, that has a diluted effect into our margins because, as you know, shipping, while it's a crucial differentiator and really important from a customer perspective, it also drives our payments product because when a customer is using shipping, they also use our payments product. We're really excited by the performance since we mandated shipping on Live Auctioneers. Obviously, that comes with a mixed impact from a margin perspective. That's why we're guiding to a lower number for financial year 2025 from a margin perspective. Clearly, with end markets remaining tricky, in particular, the uncertainty around tariffs and a bit softer on the end markets, the commission rate hasn't been able to pick up quickly enough to offset some of that margin mix shift. That's really the sort of moving parts from a margin perspective. As you'd expect, Lara, we're not giving guidance going into 2026 at this point.
We would normally do that at the full year. I won't comment specifically on the margins going into next year, but I think just commenting that this underlines the importance of our strategic growth programs, whether that be value-added services, which we've seen very strong growth again in Q3 in double-digit territory, and whether it be things like search and discovery, which, as you know, is an area of focus for us as we head into 2026. It just reinforces the importance of those strategic initiatives from our side. That's probably the summary from a margin perspective.
Great. Thank you so much.
We'll take our next question from Willam Larwood of Berenberg. Please go ahead.
Hi guys, can you hear me?
Yes.
Great, thanks. Just a couple from me. I guess firstly you spoke about sort of monetizing the underbidder, which I guess makes sense, but I think you said that that would be sort of a year three initiative. Just some detail as to why it will take long to get that up and running and those synergies realized, I guess, from a revenue point of view. In addition, you spoke about the $8 million of synergies being realized by FY 2027, but how much can we expect to be realized in FY 2026, and are there any exception costs that we should be thinking about? Finally, just in terms of any future potential M&A, is this the direction that we should be thinking about, i.e., more fixed-price marketplaces versus traditional auction? That would be great, thanks.
Maybe I'll cover the timing of the underbidder and the future M&A, and Sarah can cover the $8 million part. In terms of the timing of that, year one, we're just trying to be conservative here in that we are executing on the $8 million of synergies in year one, and we want to make sure that we get that up and running and get our hands around operating the business. That is a meaningful amount of work just in year one, getting $8 million of cost synergies out of the business, and that is kind of the focus for that year. In the second year, we're going to be implementing that playbook more ambitiously. Obviously, we're going to be trying to do some of that in year one as well.
The reason that we say year three is it's year three when we think that the real impact of monetizing the underbidder will be felt. If year one is around the cost synergies and executing on the playbook, year two is around executing on the playbook and building out the capability that will enable us to present these opportunities to the underbidder. I know the question will come in, and we're estimating it at about $1 million - $1.5 million, maybe $2 million of spend to be able to get that monetizing the underbidder capability available. Therefore, when you look at all that, you'll start to see it roll out in year three, so the impact to be felt in year three.
Obviously, we'll be trying to get that done faster, but I think the safest way to present it is that you shouldn't expect it in year one, and then we'll be working more on it in year two, but it could come out a little bit earlier. In terms of future M&A, what we view is we're looking at transforming the secondary goods market for art and antiques, same as we are for industrial and commercial. If there are opportunities that come along, whether they be marketplaces for auctions or marketplaces for list price, what we're saying with this is that we consider estatesales.net is what really gives us a lot of confidence that we can take a list price classified type business and turn it into something that's growing faster and which is complementary to what we do. That was the rationale behind this.
For anything future that we look at doing. Sarah, over to you for the $8 million.
Yeah, in terms of the $8 million, we would expect more than half of that to be recognized during 2026, and you'll have the full benefit for the full year of 2027. That's sort of how we're thinking about it. To your question on the costs, we think there will be around $4 million of integration costs as we integrate the business and deliver those synergies, which we've modeled in over the coming months. We would expect more than half of that $8 million to be in place before year 2026, and then have a full run rate in 2027.
Okay, next question.
We'll take our next question from Ross Broadfoot of RBC Capital Markets. Please go ahead.
Morning everyone, can you hear me? Brilliant, thank you. Just a couple from me, please. Could I just clarify on the average lot sizes, please? When I spoke to the company this morning, the team shared average lot sizes $800- $900 versus the $350- $400 in traditional A&A. Just clarification there. Secondly, obviously if list price items are going to be cross-listed alongside auction items, how do you mitigate any risk that you blow your customer proposition with those two pricing models in action? Thank you.
In terms of the first, in terms of the lot sizes, that's correct. What you have is somewhere between 10% and 20% of ATG's inventory already is being sold in that kind of north of 500%. Our GMV, sorry, is being sold north of that $500 mark already. It's one of the areas that we see very high demand. Obviously, one of the things that's exciting for us about this is that the more buyers that we're able to bring who are already used to buying in that zone will, we believe, help us win more share from in that segment. You only need a few of those items to be sold versus a $100 item to get some good GMV going on the auction side.
In terms of undermining the proposition, we again think that when you look at the fact that there are going to be $ 4.5 million additional browser sessions that are also going to be exposed for auctioneers, as well as the cross-listing that we'll be doing for Chairish, that should be additive, not negative for the auctioneers as well as for Chairish. Clearly, we'll be experimenting with that. We won't be just blasting it out right away. We'll be experimenting with it and bringing those cross-listing sales on a limited basis to start out and then gradually ramping it up as we see how that works.
Thank you.
As a reminder, if you would like to ask a question, please use the raise hand feature in the Zoom webinar at the bottom of your screen. We'll take our next question from Oliver Tipping of Peel Hunt. Please go ahead.
Hi guys, just a really quick question from me. I just wanted to check whether the bid around the acquisition was a competitive one. Was it a competitive tender or not? Because it's sort of including the $8 million of savings, it's still sort of around 10 times EV/EBITDA. How did you think about the valuation there that you ended up at?
I'll just talk about the process and then Sarah can talk about the second part. Yes, it was a competitive process. They were running a process. They had multiple bids for the business and ATG was the high bid. I think it kind of goes to the fact that for us, we see ourselves as being able to often pay a bit more than other people because of the synergies that we're able to get with ATG or other trade buyers who may be interested in this space. I'll stop there and turn it over to you, Sarah, for evaluation.
Yeah, sure. Thanks, Oliver. Yeah, as you say, the purchase price is about 1.6 times revenue on today's revenue. The way we've thought about it is exactly as you said, the post-delivery of the $8 million of high-confidence synergies, that's around a 10 times multiple. I think that the real opportunity is actually the power of bringing the two businesses together, having the multi-format approach, significantly more inventory, buyers, and sellers, and all of our ability to do things like cross-listing, but also obviously the marketing playbook, etc. That's actually where you generate material sort of benefits to both sides of the businesses. We're not quantifying today any benefits to the core business, but clearly those benefits will run both ways. I think that is why we feel that when you apply those revenue benefits over time, that's why we feel that the price that we've paid is very appropriate.
Brilliant, thank you.
There are no further questions on the webinar. I will now hand back to management for closing remarks.
Thank you again for taking the time. As you've heard us say a few times now, we think that this is a great acquisition for Auction Technology Group, whether it be in terms of marketplace, a strengthening of our core marketplace, whether it be the fact that we can run this business as we have others more profitably and with higher growth, or whether it leads to the transformative opportunity that we've spoken about before and giving us a huge foundation on which to build and execute on that. We're excited and we look forward to executing and demonstrating the results and giving you an update on this end of November at our earnings. Thank you very much.