INTERNET: Alibaba On M&A Steroids With New Series Of Deals

By newsdoug on May 19, 2015

Bottom line: The accelerating pace of deals by Alibaba and its founder Jack Ma could be cause for concern, potentially overwhelming the company and Ma and creating headaches as they work to integrate so many new tie-ups.

It’s no secret that e-commerce giant Alibaba (NYSE: BABA) has been on a buying binge over the last 2 years, snapping up billions of dollars worth of smaller companies and forging new alliances as it tries to get into just about any Internet and media business it can find. But even a veteran industry watcher like myself is getting dizzy this week by the accelerating series of deals, which has seen the company and its charismatic founder Jack Ma in at least 4 headlines involving major new tie-ups in a wide variety of spaces.

One of those is coming in the logistics space, with Alibaba announcing its purchase of a stake in a major Chinese parcel delivery service. Another comes in entertainment, where the company is reportedly in talks for a smart TV joint venture with PC giant Lenovo (HKEx: 992). Yet another deal is in finance, with Jack Ma reportedly buying a stake in the Hong Kong-listed Reorient Group (HKEx: 376). And all of those deals are coming a day after media reported that Ma has become a new investor in the sports entertainment unit of online video services high-flyer LeTV (Shenzhen: 300104).

I’m a big fan of M&A, especially in highly fragmented sectors were consolidation is needed to create a few major players with the scale to earn sustainable profits. But Alibaba’s move into so many different areas through so many different kinds of tie-ups seems a big extreme to me. It’s difficult enough to manage a single major merger or new partnership due to differing corporate cultures and other factors, and so many different tie-ups is all the more difficult to handle effectively.

This new hyperactive tie-up spree is also somewhat ironic, since Ma himself just announced 2 weeks ago that his company would freeze Alibaba’s headcount at its current levels to consolidate its rapid growth over the last few years. (previous post) Of course Ma himself would probably argue that none of these investments and tie-ups counts as actual acquisitions, and some of the deals are also being done by him personally rather than by Alibaba.

All that said, let’s do a quick run-down in this latest list of deals involving Alibaba and Jack Ma to show what he’s been up to this past week. I should start by being fair and pointing out that all of these deals are largely consistent with Ma’s recent drives into a number of new business areas, including finance, logistics and entertainment.

Let’s begin with the 2 deals that have been formally announced, staring with one that will see Alibaba take an unspecified stake in domestic parcel delivery firm YTO Express. (company announcement; Chinese article) There’s no additional information in the announcement, except to say YTO will work closely with Alibaba’s own logistics unit. The deal appears to be part of Alibaba’s previous commitment to invest 100 billion yuan ($650 million) in logistics over the next few years.

Next there’s the deal that has Ma and his associated Yunfeng Financial in talks to purchase a major stake in Hong Kong-listed financial services company Reorient Group. (company announcement; Chinese article) Reorient disclosed Yunfeng’s name but not Ma’s in its formal announcement of the talks, and presumably this purchase would eventually get folded into Ant Financial, the financial services unit associated with Ma and Alibaba.

Next there’s the entertainment business, where media reports are saying that Alibaba is in talks to form a smart TV joint venture with Lenovo. (English article) That move would reportedly see Lenovo spin off its fledgling smart TV business into a separate company to be co-owned by Alibaba, which would inject its own YunOS operating system as well as several sales channels related to its popular e-commerce sites. That particular deal would come just a day after Ma reportedly joined a group of investors who put 800 million yuan into the sports business of online video high-flyer LeTV. (Chinese article; previous post)

Anyone whose head is spinning after reading all this would certainly be justified in feeling a bit overwhelmed, as any of these deals could qualify as a major transaction. The fact that Alibaba and Jack Ma are doing so many such deals at the same time doesn’t come as much of a surprise these days. But that said, the pace of new tie-ups is somewhat worrisome, and could leave both Alibaba and Ma with a bad case of deal hangover in the next year or two.