Market USA

Paddle8 moves to buy stake in Artnet

The online auction house is looking to take over a 3% stake, currently controlled by Redline Capital Management, the company that tried to take over Artnet last year

Paddle8's co-founders Aditya Julka and Alexander Gilkes

The online auction house, Paddle8, is acquiring an option to purchase a stake in Artnet, the online auction data provider and auctioneer. The stake, approximately 3%, currently belongs to Redline Capital Management, which attempted a takeover of Artnet last summer.

Meanwhile, Redline has acquired a stake of around 5% in Paddle8. There are ongoing discussions about its joining the firm’s board of directors, says a source close to Redline, which is chaired by the billionaire businessman, Vladimir Evtushenkov, owner of the Moscow-based investment company, Sistema.

Paddle8 declined to comment on any potential appointments to its board of directors, but Osman Khan, its chief operating officer, says: “Redline is an experienced art world investor with several complementary art world assets, including Skate’s Art Investment Review and the Vienna Art Fair. We welcome them into the investor group.” Paddle8, which acquired another online platform, Blacklots, last year, focuses on benefit auctions and themed sales. Redline’s investment is part of a major round of funding that totalled $6m.

Paddle8 says that its interest in Artnet is “a gesture of good will towards a great business. We see a lot of strength in Artnet, and feel that the two businesses are complementary,” says the company’s co-founder, Aditya Julka. “Paddle8 will benefit from Artnet’s price database and listings business, contributing to a winning formula in leading the online auction space. This is not a takeover but rather a move towards collaboration in the future.”

Artnet is open to the idea. “There may be a way to work together,” says its chief executive officer, Jacob Pabst. The firm was founded in Germany in 1989 and “up until a few years ago was all by itself in the field. Now, all these companies are squeezing themselves into a tiny market. A couple of them will go away, but there is more consolidation due in the long term.”

Discussions are at an early stage. “Paddle8 want to work with us in some way, but we’ve not been able to agree on what because we have the product and it doesn’t make any sense to give them our clients. But, I like the guys very much and think they’re great at marketing, which could be very useful,” Pabst says.

In the past few years, Artnet has been heavily losing capital. The firm went from an operating profit of €0.9m in 2011 to an operating loss of €0.7m in 2012 and its stock price has fallen from 6.38 on 23 July last year to 2.85 as we went to press. Pabst says the main reason for the decline is the huge investments the company has made in restructuring and cost-cutting measures, as well as in product development. Artnet closed down it online art magazine in June last year and since then has focused on data analysis and online auctions. Pabst says that the company expects to turn a profit next year.

Pabst adds that he would “certainly like the backers behind Paddle8 to be involved more than Redline”. Relations between the two companies became bitter after Redline tried to take control of Artnet last summer in an aggressive takeover bid, which ultimately collapsed.

The saga was extensively covered by the art market analyst Skate’s Art Market Research, which was founded by Sergey Skaterschikov in 2004. Skaterschikov temporarily suspended analysis of Artnet in May when he was appointed to Redline’s board but has since resumed his coverage. In a recent newsletter commenting on Artnet’s 2012 year-end figures, Skate’s wrote that the company has “completely transformed itself from incumbent leader to an obvious victim. This only brings to mind a vivid image from a Jurassic Park movie: a white goat expecting T-Rex in the middle of the night… Artnet seems to be screaming for a new takeover suitor.”

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Comments

28 May 13
20:11 CET

JACOB PABST, NEW YORK

As stated publicly many times, we regularly hold conversations with companies that, like Paddle8, reach out to us to express an interest in strategic partnerships. Keeping an open mind in having those conversations is markedly different from a deal actually being in the works, and there is currently no specific proposal being discussed with Paddle8. The repeated portrayal of artnet as a defenseless prey has been proven biased and wrong. We are the leaders in every one of our businesses, with the gold standard in price databases, the biggest gallery network, and the most online auctions sales (as attested by actual, published and audited numbers). We have the assets, the business model and the market leadership position other companies want. The strategy we have put in place to get back to profitability this year - not next - is on track. We have already greatly reduced our losses during the first quarter of 2013, and we forecast that this trend will continue.

20 May 13
18:27 CET

SERGEY SKATERSCHIKOV, LUXEMBOURG

Just to clarify: Redline Capital Management SA has no affiliation with and no ownership interest in neither Skate's nor with Viennafair. The confusion is well understood since I did found both Skate's Art Market Research (in 2004) and Next Edition Partners GmbH (that operates Viennafair) in 2011, but as of today and for quite some time I am neither director nor officer of Skate's and/or of Next Edition Partners GmbH (Viennafair). I am the Board Member and Managing Director of Redline Capital Management SA, Luxembourg based and regulated investment manager with its primary focus on investments in media and e-commerce in Western Europe and North America. Jurassic Park is just a movie, and even that movie ended well :)

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