Pactera Bows From NY, Dianping Waits
I’m always looking for signs that the overseas IPO market for Chinese tech firms may finally be warming after a long winter now in its third year, but the latest signs from privatizing IT outsourcing firm Pactera (Nasdaq: PACT) and restaurant ratings site Dianping are hardly encouraging. Pactera has just announced it has formally signed a buyout offer that will take the company private, making it the latest in a long string of Chinese companies to de-list from New York. Meantime, media are reporting that Dianping, a dynamic site often likened to US site Yelp (NYSE: YELP), doesn’t plan to list for the next 5 years.
These 2 latest signals show that Chinese companies don’t see much advantage now to listing overseas, where investors are skeptical following a series of accounting scandals back in 2011. While many of the more dubious Chinese companies have been forced out of the market by now, investors seem to have lost either their interest, their appetite, or both for these companies that at one time were Wall Street darlings. I probably should modify that thought slightly, as certain sector leaders like Baidu (Nasdaq: BIDU), Ctrip (Nasdaq: CTRP) and Tencent (HKEx: 700) have seen their shares soar in recent months, while just about everyone else has languished.
Perhaps somewhat ironically, Pactera also became a leader in the IT outsourcing sector when it was formed last year through the merger of 2 of the industry’s largest players, HiSoft and VanceInfo. But despite initial excitement about the merger, the company’s shares largely stagnated and were going nowhere when it received a buyout offer in May by a group led by private equity giant Blackstone.
In an interesting twist, Blackstone later lowered its initial bid of $7.50 per American Depositary Share (ADS) to $7, reportedly after determining that Pactera’s prospects weren’t as good as it previously thought. Now in this final deal, the Blackstone group has raised its offer to $7.30. (company announcement) Perhaps that’s a slightly encouraging sign, though the bottom line is that yet another interesting Chinese tech firm will be leaving the publicly traded realm.
From Pactera, let’s move on to Dianping, whose chief executive said in an interview he isn’t planning an IPO for another 5 years. (English article) A confident Zhang Tao said he estimates Dianping is now worth $10 billion, making it about twice as valuable as Yelp. Zhang doesn’t offer much financial information, though he discloses that Dianping has about 75 million active users who access the service each month for its restaurant reviews and group buying coupons. He also discloses that the company, which is already 10 years old, will probably turn profitable next year.
I’ve always been a big fan of Dianping, as it seems like a very focused company that carefully considers its big business decisions and only enters new areas when it has a clear roadmap to profitability. At the same time, I also am starting to feel some frustration at Dianping’s extreme conservatism. The company missed a great opportunity to purchase assets at fire-sale prices when many of China’s group buying sites were experiencing financial difficulty over the past year.
In my view, Dianping could be missing a great chance to build some hype and boost its profile by waiting so long for an IPO. Five years is like an eternity in the fast-moving Internet world, and Dianping could easily be overtaken during that time by more aggressive Internet firms like Alibaba and Jingdong. Still, I do have to admit the company’s conservatism has served it well in the last few years, since it’s still in business and moving on an upward track even as many other former Internet high-flyers have foundered and closed.
Bottom line: Pactera’s imminent de-listing and Dianping’s plan to wait 5 years for an IPO reflect lingering skepticism among western investors towards China tech firms.
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