The $15bn merger agreed last week by group buying company Meituan and local services listing platform Dianping illustrates the increasing consolidation in China’s internet services sector.
Dianping was founded as a restaurant listings and reviews service but has since expanded into a wider ranging local services platform, adding more interactive features such as reservations, food delivery, group buying and online payment.
The company had raised more than $1.5bn from internet portal Tencent, smartphone maker Xiaomi, conglomerates Wanda and Fosun, Temasek Holdings, FountainVest Partners, TrustBridge Partners, Sequoia Capital, Qiming Venture Partners and Lightspeed Venture Partners, and was valued at $4bn as of an $850m funding round in March this year.
Meituan on the other hand began life as a Groupon-like daily deals service before eventually evolving into a group buying company that enables users to access cheap goods and services from a variety of industries including food, entertainment, consumer goods, travel and hospitality.
Founded in 2010, Meituan had raised about $1.1bn altogether from e-commerce firm Alibaba, Hillhouse Capital, Fidelity Management and Research, General Atlantic, Sequoia Capital, Northern Light Venture Capital and Walden International. It secured $700m in January 2015 at a $7bn valuation but reports in July stated it was planning to raise new funding at a $15bn valuation.
The companies will continue to operate independently post-merger under their separate brands, but will look to partner wherever possible. Although there is some crossover in their activities, Meituan will be able to use Dianping’s considerable listings base to boost its partnerships while Dianping will in theory be able to monetise its services more efficiently in future using Meituan’s expertise.
The deal is perhaps a sign of the times. While 2014 was notable for Alibaba, Tencent and Baidu spending big on venture capital investments and acquisitions to expand their respective ecosystems in China, this year has seen market leaders in individual online services sectors merge in order to consolidate their position at the top of the heap.
Two other significant China-based mergers this year involved cab hailing app developers Didi Dache and Kuaidi Dache joining forces to form what was a $16bn business as of last month, and online marketplace 58.com buying a 43% stake in local services listing platform Ganji.
Deals of this ilk are not restricted to China – Korea-based messaging app Kakao merged with internet portal Daum last year to form a company with a market cap of almost $10bn, while last week US-based ticket sales and technology platform Ticketfly was acquired by music streaming and recommendation service Pandora to form a company that will span the music services world.
China however is different because to a certain extent these kinds of strategic mergers are happening at a secondary level. Daum and Kakao for instance had corporate backers, but they were based internationally, whereas the presence of Alibaba, Xiaomi and Tencent among Dianping and Meituan’s investors essentially makes the deal another front in the competitive and wide-ranging battle for dominance in China’s e-commerce space.
The situation is a strange one. On the one hand, mergers like this one are a kind of necessity, growing a company big enough so that they cannot be acquired or bumped out of the market by a rival service launched by, say, Alibaba and Baidu. But one or more of those companies are invariably among the strategic investors in those companies, so however big they grow, in a sense they always seem to remain in the shadow of their more diverse backers and cn only grow so far.