Dianping Invests In “Big Mouth” Takeaway Service
Leading restaurant ratings site Dianping has been making steady headlines these last 3 months, including the latest reports that it’s investing in an app that lets users order and pay for take-away food over their smartphones. The tie-up looks relatively modest and has Dianping investing about 50 million yuan ($8 million) in Dazuiba, whose name means “big mouth” in Chinese. More broadly speaking the deal seems to reflect a few recent trends for Chinese Internet M&A, including the rapid disappearance of attractive targets and a growing preference for strategic investments instead of outright acquisitions.
This latest deal looks like a relatively smart one for Dianping, often called the Yelp (NYSE: YLP) of China, as it complements the company’s core business of providing restaurant ratings and group buying dining coupons. (English article) Dianping’s investment is the first major fund-raising for Dazuiba, which was founded just last year and is operated by Shanghai-based Tongchi Network Technology. As an interesting extra detail, 2 of Dazuiba’s founders are former top executives from e-commerce leader Alibaba.
This particular deal comes just a week after a similar deal that saw Dianping agree to buy an undisclosed stake in Rajax Information, operator of Ele.me, an online food-ordering platform that looks similar to Dazuiba. (previous post) Reports on that deal said that Dianping was invested $80 million in Rajax, and implied the purchase was also a strategic stake rather than an outright acquisition.
Dianping has also been in the headlines this year as a target itself for a series of strategic investments by larger Internet companies. It made headlines in February when it sold 20 percent of itself to leading social networking company Tencent (HKEx: 700) for an undisclosed sum, most likely in the hundreds of millions of dollars. This week it was back in the headlines with reports that it was also in talks to sell another strategic stake to leading online travel agent Ctrip (Nasdaq: CTRP). (previous post)
I suspect that Dianping received $300 million or more from its stake sale to Tencent, and is now under pressure to invest some of the money in its own acquisitions. These investments in Ele.me and now Dazuiba look quite logical and smart, since they complement Dianping’s own core restaurant ratings business. But both investments are also relatively small, totaling less than $100 million combined.
It’s also noteworthy that Dianping is a strategic investor in both of these latest deals. It would have been easy for the company to completely swallow either Ele.me or Dazuiba, since both are quite young and small. The fact that Dianping is buying only strategic stakes probably means that owners of Ele.me nor Dazuiba wanted to remain independent. Dianping itself has expressed a similar desire to remain independent, and I suspect that owners of many of the most attractive remaining acquisition targets in China’s Internet sector may have similar inclinations.
So, what does this mean for the future of Internet M&A in China for the next 6 months, following a banner year that saw billions of dollars in deals in 2013? I suspect that the days of deals worth more than $1 billion are in the past, though perhaps we could see 1 or 2 more blockbuster acquisitions before the current wave ends.
Instead of big deals, we could see more of these smaller, strategic buys become the norm in the months ahead. That could pose an interesting quandary for the big 3 Internet names of Baidu (Nasdaq: BIDU), Tencent and Alibaba, as well as other major players, which have billions of dollars in recently raised cash but could quickly discover they have no place to spend the money.
Bottom line: Two smaller strategic stake buys by Dianping could reflect the rapid disappearance of attractive major M&A targets in the Internet space, and such deals could become the norm for the remainder of 2014.
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