Gaopeng, FTuan Lead Group Buying M&A 高朋网和F团或引领中国团购业并购潮

By newsdoug on April 11, 2012

Finally there’s a rumored merger in China’s overheated group buying space that looks smart, with Groupon’s (Nasdaq: GRPN) struggling joint venture Gaopeng reportedly in talks to combine with another struggling firm called FTuan. (English article) Such mergers are sorely needed in the group buying space, where nearly everyone is losing money due to rampant competition and quality control problems are leading to growing signs that Beijing will step in to heavily regulate this unruly industry. According to the reports, citing an unnamed industry source, Gaopeng, a joint venture between Groupon and Chinese Internet leader Tencent (HKEx: 700) is negotiating a merger with FTuan, though no deal has been reached yet. This deal is no doubt being brokered by Tencent, which invested $30 million in FTuan last year, making it a stakeholder in both Gaopeng and FTuan. (English article) I won’t even ask why Tencent decided to invest in another group buying site just months after launching Gaopeng with Groupon, in what must have looked like a clear conflict of interests at the time. But regardless of the background, this combination, if it happens, looks like a smart move for both companies and the broader group buying space where many players are struggle to stay in business as they burn through their cash piles and investors refuse to provide more money. Gapeng itself began mass layoffs just months after its launch early last year, and it’s unclear how committed Groupon is to the venture, especially as Groupon itself comes under scrutiny after saying it will restate some of its financial information following its Nasdaq IPO last year. We don’t know very much about FTuan, but previous media reports indicate the company has received around $100 million in funding to date, including the $30 million from Tencent, meaning it should be a relatively large company whose scale is comparable to Gaopeng’s and thus should make it a meaningful merger partner. Honestly speaking, I’m surprised we haven’t seen more such merger talks these last few months, but perhaps that’s not surprising in China’s entrepreneurial Internet space where many bosses might prefer to simply see their firms go out of business rather than merge with a rival. One such company that looks headed in that direction is Groupon.cn, unrelated to the US Groupon or Gaopeng, which has reportedly cut most of its staff after it used up most of its cash and investors refused to provide more. (previous post) Another company that could probably benefit from a big merger is LaShou, whose New York IPO derailed last year after regulators reportedly had questions about its accounting. My sources tell me LaShou is reportedly preparing to file again for the IPO, but it could certainly improve its chances and even create some investor excitement if it were to merge with another major Chinese player first, such as 55tuan. Look for more of these mergers to come in the months ahead, along with a steady stream of closures by cashless companies, with a few interesting players likely to emerge in a much steadier consolidated industry by the end of this year.

Bottom line: Gaopeng’s rumored merger talks with FTuan are the first of what will be many mergers and closures for group buying sites this year, with consolidation likely to wrap up by year end.

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