IPOs: Ninebot Swallows Segway, Zips Towards US IPO
Bottom line: China’s Ninebot most likely purchased Segway for less than $100 million to get its technology, and could make a New York IPO by 2017 that will value the firm at $2-$5 billion.
If you can’t beat ’em, then buy ’em. That seems to be the philosophy at a Chinese firm called Ninebot, which has just announced it has purchased US rival Segway, maker of a trendy type of 2 wheel, stand up vehicle used to travel short distances. The pair of companies previously had a stormy relationship, as Segway had accused Ninebot of intellectual property theft. So this new purchase should formally end the copycat allegations.
One of Ninebot’s backers is smartphone sensation Xiaomi, which has also been accused of illegally using patents owned by Swedish telecoms giant Ericsson (Stockholm: ERICb). I doubt we’ll see Xiaomi follow Ninebot’s lead and swallow Ericsson anytime soon, and it’s also worth noting that many cutting-edge tech firms often sue one another in emerging spaces. Still, this is one of the first cases I can recall of a Chinese firms buying its accuser, and perhaps could mark the start of a similar trend for Chinese copycats.
According to the latest reports, Ninebot has purchased Segway for an undisclosed price. (English article; Chinese article) While Segway has developed cool and trendy reputation for its signature 2 wheel people movers, the company actually has a checkered history in terms of ownership. Nine years after its launch in 2001, the Segway was purchased in 2010 by British firm CEO Out. It was sold to Summit Strategic Investments 3 years later, though no prices were ever announced.
That kind of past indicates that Segway probably wasn’t living up to its potential, and that its latest owner may have become frustrated and decided to sell the company when Ninebot stepped in with an attractive offer. Chinese firms have done a number of similar M&A deals for cash-starved and bankrupt western firms whose technology was once highly hyped but failed to live up to expectations.
One of those saw Chinese auto parts maker Wanxiang buy A123 Systems in 2012, after the US maker of high-tech batteries struggled and slipped into bankruptcy. Last year Geely Auto (HKEx: 175) also made headlines when it purchased Emerald Automotive, a British new energy car start-up that was in need of cash to fund its activities in the emerging field.
All that said, it’s probably safe to say that Ninebot didn’t pay too much for Segway, which is probably struggling under a large debt pile as its people movers remain largely a niche product. Segway also has pending patent infringement complaints against a number of other Chinese companies with names like WindRunner and FreeGo, so perhaps Ninebot will help to stamp out these other copycats following its latest purchase.
While Ninebot didn’t want to talk about how much it paid for Segway, it was more than happy to point out it recently received a new funding round worth a relatively modest $80 million from an investor group that included Xiaomi and Sequoia Capital. Its CEO also discussed a plan to make a New York IPO as soon as 2017, and said the listing could give the company a lofty valuation as high as $50 billion. (English article)
I don’t know enough about any of these companies’ financials to give an authoritative assessment of this valuation. But that won’t stop me from giving my view that the figure looks ridiculously high for a company of this size, and that Ninebot’s CEO is probably suffering from envy after many Chinese tech firms have recently fetched extremely high valuations on high expectations for the China market. It’s quite possible we could see Ninebot make its New York listing in the next 2 years, but I would expect its valuation to be far lower than the figures it’s giving, probably in the $2-5 billion range.
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