Tencent Travels With NavInfo Stake Buy
The buying binge by China’s 3 leading Internet companies continues this week, with news that social networking (SNS) giant Tencent (HKEx: 700) is purchasing 11.3 percent of mobile mapping firm NavInfo (Shenzhen: 002405) for 1.17 billion yuan ($183 million). Anyone who thinks I may be mistakenly recycling an old report with this news isn’t too far from the truth, as this particular deal looks quite similar to a different recent investment by e-commerce leader Alibaba in online mapping firm AutoNavi (Nasdaq: AMAP).
This is hardly the first case of deja vu in the ongoing wave of M&A by Alibaba, Tencent and online search leader Baidu (Nasdaq: BIDU), which are looking increasingly alike as each buys similar assets from a wide range of online sectors. But Tencent has differed a bit from its other 2 peers by purchasing minority stakes in most of its assets. By comparison, Alibaba and Baidu seem to prefer outright acquisitions.
I’ve previously said I like Tencent’s strategy of forming this kind of strategic tie-up versus outright acquisitions. By purchasing major but minority stakes, Tencent gets to have some say in the management of its strategic partners, and can work more closely with them to look for synergies. Tencent’s strategy also keeps existing management intact at its new strategic partners, which seems like a good approach since those managers have deeper understand of their industries.
Too often in major M&A, the buyer ultimately ends up throwing out previous managers and replaces them with its own people. That strategy may bring in more professional management and improve communication between the purchaser and its acquired asset; but it often also saps the acquired company of industry know-how and the entrepreneurial spirit behind its early success.
All that said, let’s take a look at the latest Tencent deal that has it purchasing its 11.3 percent of NavInfo from the company’s state-run parent, China Siwei Surveying & Mapping Technology Corp. (English article; Chinese article) Following the deal, China Siwei’s stake in NavInfo will fall to 12.6 percent.
The purchase price values NavInfo at roughly $1.7 billion, which is roughly comparable to AutoNavi’s value when Alibaba purchased control of that company earlier this year. Alibaba initially bought 28 percent of AutoNavi last year, and then later proposed a purchase of the rest of the company.
Tencent made another major challenge to Alibaba in March when it purchased 15 percent in JD.com, Alibaba’s biggest rival in e-commerce. But in a separate major deal, Alibaba trumped Tencent late last month when it purchased 16.5 percent of leading online video site Youku Tudou (NYSE: YOKU). Before that happened, Tencent had reportedly been close to clinching its own deal to become Youku Tudou’s investment partner. Baidu hasn’t been absent from the buying binge, making its own online video purchase when it bought another leading site, PPS, last year.
As I’ve said above, this latest purchase by Tencent continues its trend of buying strategic minority stakes in other companies, usually in the 15-30 percent range, rather than outright acquisitions. We’ve already seen at least one case of how Tencent will use these new tie-ups, with word last month that it planned to add a special e-commerce channel for JD.com on its popular WeChat mobile messaging platform not long after the pair announced their equity alliance. (previous post)
We’ll have to wait a bit longer to see whose M&A strategy works the best. I do have some concerns about Alibaba’s buying binge, which seems quite wide-ranging and lacking in focus. Baidu’s purchasing looks a little more focused, aimed at building up a few key areas. Tencent’s strategy also looks strong, aimed at finding targets that can bring synergies to its core gaming and SNS businesses. Only time will tell whose strategy ultimately succeeds; but I do think Tencent’s approach will give it the assets it needs in its hunt for new revenue sources, along with flexibility to sell off minority stakes in partnerships that perform poorly.
Bottom line: Tencent’s latest purchase of a minority stake in an online mapping company continues its strategy of forming equity tie-ups with partners that can help to monetize its core SNS and gaming businesses.
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