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M&As

Behind the scenes of Naver’s $600 mn Wattpad purchase

By Feb 01, 2021 (Gmt+09:00)

 Behind the scenes of Naver’s 0 mn Wattpad purchase
Last August, online portal Naver Corp. entered into exclusive talks with Toronto-based Wattpad Corp. to buy a stake in the world’s largest web novel platform, after it was tipped off to the latter's stake sale plan. As their discussions proceeded through Zoom-only meetings, the stake deal evolved into negotiations for a full purchase.

Upon receiving Naver's acquisition proposal, however, Wattpad informed the South Korean web giant of "many great candidates" joining the race, asking for time to review their offers.

ByteDance Ltd., the owner of China’s social networking service TikTok, Swedish music streaming company Spotify Technology S.A. and streaming service provider Netflix Inc. were among those vying for the deal. Amazon.com Inc. and Facebook Inc. were interested in the Canadian storytelling platform as well, according to industry sources with knowledge of the matter.

The heated competition pushed Wattpad's value up beyond the expected $400 million range, prompting Naver to consider backing down. 

“But we concentrated on how to create post-acquisition value. Our conclusion was that we can accept the increased price,” Naver Webtoon Corp. Chief Executive Kim Junku recently told Market Insight, the capital news outlet of The Korea Economic Daily.

Acquisition of Wattpad means having access to over 90 million users and around one billion Wattpad stories. Another expected synergy is that Naver may be able to adapt the stories into webtoons, or digital comics, a market in which the online search engine is seeking to reinforce its global footing. 

To outdo the competitors, Naver refreshed its offer. It suggested either paying the $600 million acquisition price in cash or with Naver shares worth $640 million. The sweetened offer was another winning factor in what was to become Naver's largest ever acquisition and its first crossover deal.

In particular, Nasdaq-listed Spotify, with a bigger market value than Naver’s $51 billion, was its nearest competitor. Spotify’s bid price was just around $20 million less than Naver’s purchase price, said the sources.

IN-HOUSE EXPERTS

Behind the swift and flexible approach to the Wattpad deal was Naver's taskforce team composed of 10 experts in finance and engineering. Headed by Naver Webtoon CEO Kim, the in-house team handled the entire process of the $600 million acquisition from deal sourcing to closing, without support from external investment bankers.

The team directly reports to Naver’s co-founder and Global Investment officer Lee Hae-jin. It also managed the 600-billion-won share swap deal with Korean retail-to-entertainment giant CJ Group announced last October.

“Generally, finance or strategy divisions are in charge of M&A deals at large business groups. During the M&A process, they are swamped with several hundreds or thousands of pages of reports from investment banks and go through a series of internal briefings to avoid responsibility," said one of the investment banking sources. 

“But at Naver all top-level managers are directly involved in M&A deals and take responsibility for the process,” he said, stressing that by not being bogged down in bureaucracy, "Naver will likely emerge as a powerful player in the M&A market.”  

The 10-member-odd taskforce team, including Macquarie's former managing director Kim Namsun, is expected to continue its key role in Naver's acquisition deals, as the online portal has been expanding into shopping, entertainment and financial services.

As a US-licensed lawyer, Kim joined Naver in August 2020 as head of M&As. During his three-year stint at Macquarie, he led the acquisition of ADT Caps and the $800 million purchase in 2019 of a stake in LG CNS Co., an IT services arm of LG Group. Previously, he worked for Morgan Stanley after graduating from Harvard Law School. 

Industry sources said Naver has hardly relied on external advisory firms for its investments in domestic startups and other equity deals. Its keen understanding of the online portal business and insight into market trends has given it confidence in the process, from valuation to negotiation.

To impress upon Wattpad the synergy they expected from their tie-up, Naver's top management even used storytelling in its presentation.

Wattpad Co-founder and CEO Allen Lau recently told Bloomberg TV that the deal with Naver will double its user base overnight and help the Canadian company grow even faster, saying: “It is a very very attractive option to us.”

Write to Jun-ho Cha at chacha@hankyung.com

Yeonhee Kim edited this article.

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