Alibaba Resumes Buying Binge With AutoNavi, Inman
Barely a week into the Lunar New Year, word of 2 new investments by Alibaba shows that China’s leading e-commerce firm has no intent of slowing its recent buying binge as it marches towards its highly anticipated IPO. The far bigger of the 2 deals would see Alibaba purchase 72 percent of digital mapping company AutoNavi (Nasdaq: AMAP) for $1.6 billion, giving it full ownership after Alibaba bought 28 percent of the company last year. Meantime, media are also reporting that Alibaba and venture capital firm IDG have invested a more modest sum of about $25 million in Inman, an online clothing brand that sells over Alibaba’s popular online shopping malls.
Both deals look relatively smart, as they come in the mobile and e-commerce spaces that are 2 of Alibaba’s main focuses right now. The deals also indicate that a fast-paced wave of M&A that began last year in China’s Internet space will continue through the first half of this year, led by cash-rich companies like Alibaba, Baidu (Nasdaq: BIDU), Sina (Nasdaq: SINA), Tencent (HKEx: 700) and several others that have huge cash piles for such buying.
The AutoNavi deal spotlights the dilemma being faced by many of China’s smaller independent Internet firms. The company operates a profitable business by selling its popular mapping services to a wide range of consumers and corporate customers. But last August Baidu started offering similar services for free in a bid to gain market share. AutoNavi was forced to follow by offering its own comparable services for free, putting pressure on its top and bottom lines. It was feeling pressure from growing competition even before then, with its revenue posting year-on-year declines in each of the first 3 quarters of 2013.
Baidu can afford to give away mapping and other services since most of its revenue comes from online advertising linked to its core search business. Many of the other big acquirers are taking a similar approach by giving away new services for free by funding them with their highly profitable core businesses. That’s putting a squeeze on companies like AutoNavi, since the company derives most of its money from its core mapping services and can’t afford to give them away for free over the long term.
Under terms of its buyout proposal, Alibaba would pay $21 for each AutoNavi American Depositary Share (ADS), representing a 27 percent premium to the price before the announcement. (English article; Chinese article) AutoNavi ADSs jumped 24 percent to $20.57 after the offer was announced, indicating investors believe there’s a good chance the company will accept the deal.
Separately, media are also reporting that Alibaba has made a much more modest investment of about $10 million in Inman, which started out as a third-party clothing seller but has successfully transitioned into developing its own brand. (English article) This particular deal is obviously much smaller than the AutoNavi deal, and I probably wouldn’t have written about it as a stand-alone news item. But it does show that Alibaba is likely to continue its steady stream of purchases as it dolls up for what’s likely to be the world’s biggest Internet IPO of 2014.
Since we’re talking M&A, I’ll close out this post by examining some of the other companies that are likely to get swallowed this year as they face similar pressures to AutoNavi’s. One of the most intriguing would see Tencent purchase leading restaurant ratings site Dianping, in a deal that was rumored last month and would likely cost billions of dollars. Other companies that could get bought include online clothing seller Vancl, group buying sites LaShou and Meituan and online video site Xunlei. I’m fully expecting to see a number of other major deals in the first half of the year, including 1 or 2 more priced at $1 billion or higher.
Bottom line: M&A in China’s Internet space is likely to continue at a brisk pace in the first half of this year, with stand-alone service providers like AutoNavi as key targets.
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