Price comparison site valuations rise as investment values iSelect at $300 million, Google buys British site

Valuations of price comparison sites in Australia and overseas are on the rise, with the sale of a 10% stake in insurance comparison site iSelect valuing the business at an impressive $300 million.

iSelect, which was founded in 2000 as a private health insurance intermediary but has since expanded into car insurance, life insurance and more recently travel insurance and home loans, sold a 10.2% stake in the business to US private equity group Spectrum Equity Investors for $30.2 million.

The investment, which values the business at over $300 million, was also good news for Nine Entertainment Company, whose ninemsn subsidiary owns about 35% of the business. It bought the stake in March 2006 for $20 million; today the stake is valued at about $105 million.

Other early investors in the business include Sydney-based property developer Shaun Bonett, who was one of the original investors in the group. Bonett, who is a member of BRW’s Rich 200 list with a fortune of $360 million, remains on iSelect’s board.

Co-founder and chief executive Damian Waller has a stake between 10-35%, with estimates putting the value at $30-50 million based on current prices.

iSelect is an unlisted public company, but Waller told The Age that he would look to push iSelect into comparison services for gas, electricity, broadband and telecommunications before considering an IPO on the Australian Securities Exchange.

The iSelect deal comes after a busy period for the Australian price comparison sector.

In October 2010, Adir Shiffman sold his home loans and financial services comparison site HelpMeChoose.com.au to listed mortgage broker Mortgage Choice for an undisclosed sum.

A month earlier, News Corporation bought the 48% of comparison site GetPrice.com.au it did not already own for an undisclosed price.

Other players in the price comparison sector are firmly on the radar of investors.

Rohan Gamble, chief executive of financial services comparison Mozo.com.au, is one of those attracting interest.

“We had five approaches in 2010 to buy our business and we walked away from them all reasonably quickly,” he told SmartCompany this morning.

“It’s too early. We’ve got some much growth ahead of us.”

Gamble says that while the iSelect deal shows how highly price comparison engines can be valued, it is important to remember that the company has been building its business in the private health insurance space for a decade.

While financial service comparison sites in overseas markets such as Britain are well established – 25% of all transactions in the financial services sector there are acquired through price comparison sites – the market in Australia is really only a few years old.

“Financial comparison is still a very new industry in Australia. It’s an early but very fast-developing story.”

“There are probably only 1-2% of transactions acquired by comparison sites in Australia, so the potential in this market has got to be 10 times what it is now in our view.”

Tim Wolfenden, chief executive of utilities price comparison site Make It Cheaper, says the interest in the sector is a reflection of the rise in consumer confidence in online retail, but says that when it comes to valuations, not all sites are the same.

For example, financial services comparison sites have always attracted higher valuations than those in the utilities space, as the fees that can be earned from a single customer in the financial services sector can run into the thousands of dollars.

“Always those financial-services-related business have far more valued tied to them,” he says.

Gamble and Wolfenden expect iSelect will move aggressively into the home loans comparison sector using its online/offline model, where customers are acquired online and then deal with the company’s contact centres to match the right customers with the right products.

“The home loan space is where the massive prize is,” Gamble says.

“I suspect that we will see iSelect become a very aggressive player, basically acting as a mortgage broker.”

Wolfenden says one major challenge for the company will be adding products to its platform.

“There are very few examples I think where you’ve got a comparison site that had a diverse product offering. It is a big leap going form insurances to utilities, and vice versa.”

In Britain, search giant Google last week paid £37.7 million for BeatThatQuote.com, which operates in the financial services area.

Adir Shiffman, who founded HelpMeChoose, expects the search engines to move into the space in Australia in the next year, along with a small group of very powerful comparison players emerges to dominate the space.

“I think that there will effectively be two large independent sites in three years time. But this is probably a pretty good opportunity for a second-tier player in Australia – like a Bing or a Yahoo7 – to really differentiate itself.”

“But I do think the comparison sites that do remain will be fantastically profitable.”