Dianping’s New Funding: M&A in Sight? 大众点评融资意在收购
It’s Monday morning and the news flow from the weekend is rather slow due to the summer holidays, so I’m going to be a bit whimsical and comment on the potential for new M&A following a new $60 million funding round for Dianping, an interesting and profitable company which started as a restaurant ratings company but which has also expanded into the problem-plagued group buying space. I’ll start by saying I have absolutely no reason to think Dianping has plans for any major M&A, but then will quickly add that its recent receipt of the $60 million in new venture funding looks suspiciously like it might be intended for such a purchase.
The reasons behind my prediction are simple: China’s e-commerce and group buying sectors are currently filled with struggling, money losing companies that are in imminent danger of closure, and which a stronger company like Dianping could acquire for big bargains. Furthermore, Dianping already generates strong cash flow from its own existing business, and previously raised $100 million in a funding round last year from a group that included Sequoia Capital (previous post), making this latest $60 million round seem too small and unnecessary for organic growth.
Let’s take a look at the latest news, which has media reporting that Sequoia Capital also participated in the latest funding round, which Dianping will use to develop mobile applications for its popular restaurant ratings services. Again, I’ll repeat that I have no real reason to think that Dianping won’t use the money for the stated reason of developing mobile services, since the company may really need new funds after going a year and a half since its last major capital raising.
But again, I would emphasize that Dianping already generates relatively healthy cash flow and profits from its existing business and could probably fund any new mobile initiatives with this internal money rather than looking for new funds. Instead, I would argue that the $60 million figure looks like just about the right size for the company to purchase or buy a a controlling stake in one of the many mid-sized or larger struggling, cash-starved e-commerce or group buying sites now looking desperately looking for new funds to survive.
I previously wrote last week that leading group buying site LaShou looked like one such potential takeover target, following reports that the company’s founder had resigned his position as CEO, reportedly under pressure from the company’s investors. (previous post) LaShou, like many of its rivals, is bleeding cash and most likely in danger of imminent closure, following an aborted IPO and its inability to raise more money from wary investors.
Other potential acquisition targets could include group buying sites 55tuan and Groupon.cn, unrelated to US-based Groupon (Nasdaq: GRPN). Put simply, there are too many good bargains out there for a healthy company like Dianping to ignore. Accordingly, I wouldn’t be surprised if Dianping is in talks with one or more of these targets even as I write this commentary, and perhaps we could see announcement of a nice mid-sized acquisition in the next 1-2 months.
Bottom line: Dianping’s $60 million in new funding could provide a nice cash basis for an acquisition of a struggling group buying site, with such a deal possible in the next 1-2 months.
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