Meituan Gets New Funds, Eyes IPO
After a 4 year cycle that saw China’s group buying sector first boom and then crash spectacularly, we could finally see an IPO soon from Meituan, which has emerged as the industry’s leader and a true survivor. Media are reporting that Meituan is close to getting $100 million in new funding — an admirable feat in the current climate that has seen investors largely shun the group of former high flyers. That investment would come just weeks after leading Internet firm Tencent (HKEx: 700) purchased 20 percent of Dianping, another strong player that has emerged in the group buying space. (previous post)
It’s interesting that Meituan has secured the new funding at this point, since the company has been in business for a while now and is presumably profitable or at least at the break-even point following a painful retrenchment over the last year. That leads to my next prediction, that perhaps Meituan will use the new funds for a major acquisition before a potential IPO later this year. I’ve been predicting that former superstar LaShou could be ripe for such a buyout, and perhaps we could finally see that happen this time. But I should also point out I’ve predicted LaShou’s disappearance for much of the last year, either through closure or via an acquisition by a larger rival, and so far nothing has happened.
All that said, let’s turn to the latest headlines that say Meituan is close to receiving its $100 million in new funds from a group that includes Sequoia Capital, a Silicon Valley-based firm that is one of China’s most active venture capital investors. (English article) Following receipt of the money, Meituan would reportedly look to list in New York later this year, the reports say. They also point out that a Meituan executive has previously said the company was unlikely to list this year.
As I’ve said above, Meituan has emerged as a true survivor in a painful overhaul of a sector that saw explosive growth from 2010 to 2011. China boasted more than 6,200 group buying sites at one point, with some of the nation’s top Internet players entering the space, as well as US leader Groupon (Nasdaq: GRPN). But the figure began dropping in 2012, and by the middle of last year was down to around 1,500. It has dropped further since then, and was down to about 800 at the beginning of this year.
Now that the consolidation has largely run its course, it does seem like time to take a look at the new landscape and what’s likely to happen from here. Dianping and Meituan have emerged as 2 of the strongest players, and will most likely survive over the longer term. Dianping has said in the past that it is quite profitable, and its status as China’s equivalent of restaurant ratings giant Yelp (NYSE: YELP) was key in helping it secure the Tencent investment last month. Reports at the time said that Dianping was planning to make its own IPO later this year, presumably in New York.
That brings us back to Meituan, which is probably also profitable but may also need a larger partner to survive and thrive over the longer term. It could also improve its position by acquiring one or more of the major remaining players with its new $100 million in funding, and I do think that LaShou could be a good candidate for such an acquisition.
The most likely scenario could see Meituan complete this current new funding round, and then perhaps sell a major stake to a strategic partner. The 2 most logical choices for such a partner are Internet leaders Alibaba and Baidu (Nasdaq: BIDU), both of which have been quite acquisitive lately. We could then see Meitun make one or two of its own major purchases, probably paying very little for such acquisitions, before finally making its own IPO by the end of this year.
Bottom line: Meituan could find a strategic partner in Baidu or Alibaba following its latest fund raising, and then make 1 or 2 acquisitions before a New York IPO later this year.
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