LaShou: On the Cusp of Implosion? 拉手网或已面临生死抉择

By newsdoug on April 27, 2012

New developments are happening rapidly at group buying leader LaShou, which appears to be on the cusp of a meltdown as it runs out of money in the brutally competitive sector. As many of us prepare for the May 1 Labor Day holiday that marks the start of spring, many who follow this company may be wondering if LaShou will still be in business by summertime. In the latest development of this fast evolving story, domestic media are reporting a mass resignation of many top LaShou executives in recent days, including its top regional managers in Shanghai and Beijing, as well as a vice president. (Chinese article) That exodus would come only days after the company reportedly cut 40 percent of its technical staff in what looks like a desperate attempt to conserve cash. (previous post) These kinds of drastic cuts and resignations may indeed save cash, but if they continue there may not be any company left to operate. The rapid series of events seems to point to a company in crisis, which has been building for more than a year as a natural clean-up takes place in China’s overcrowded and unruly group buying space. LaShou made headlines a year ago when the company, then just 1 year old, raised a cool $100 million from a group of investors hoping it would become the next Groupon (Nasdaq: GRPN), the US company that pioneered the group buying concept. (previous post) Back then it was saying it wouldn’t make an IPO for at least the next 1 to 2 years. But then investor sentiment abruptly cooled toward the sector as competition heated up, leaving LaShou and many of its peers short of cash after most expanded rapidly earlier in the year. LaShou tried to raise new funds through a New York IPO last fall, but had to indefinitely postpone the plan after the US securities regulator reportedly voiced concerns about its accounting. The company was reportedly trying to relaunch its IPO in the last few weeks; but we have yet to see any public filings and if these latest reports are true I seriously doubt anyone will want to invest even if it does file for an IPO. Clearly things are happening rapidly now, which means we will probably see LaShou either close or merge with a rival in the very near future — in what would be the biggest consolidation move to date in the group buying space. A number of companies have already merged or are on the brink of closure, so LaShou certainly wouldn’t be the first in this latest trend, though it would certainly be the most dramatic. If I were betting, I would predict the chances of a merger are better than 50 percent, with a profitable rival like Dianping or even a non-group buying company like Baidu (Nasdaq: BIDU) or Tencent (HKEx: 700) stepping in to acquire the company for a very low price. Then again, there is also the very real chance that LaShou could close, though I would put that chance at 30 percent or less. Either way, I would be surprised if this company is still in business as an independent group buying site by the time summer arrives.

Bottom line: A new exodus of top executives at LaShou reflects an accelerating cash crunch, with an an acquisition of the company the most likely outcome within the next 1-2 months.

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