Alibaba
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Alibaba

BAT – Baidu, Alibaba and Tencent – lead charge in China mergers and show no sign of slowing down

PUBLISHED : Thursday, 07 April, 2016, 10:00pm
UPDATED : Friday, 08 April, 2016, 2:59am

When Jack Ma Yun reorganised Alibaba Group into 25 business units back in January 2013 and announced days later his exit as its chief executive, there was no inkling that what would happen next was a pell-mell rush to invest in a fast-expanding global internet market by the e-commerce giant and its two closest rivals in China.

Ma, who took on the role of executive chairman that same year, described the restructuring at that time as “the most difficult reorganisation” in Alibaba’s history, but acknowledged that he wanted to be “a good partner to more capable colleagues”.

That turned into a green light for other savvy entrepreneurs inside Hangzhou-based Alibaba to help explore new business opportunities and support strategic bets to broaden the company’s e-commerce ecosystem.

It was an unlikely investment blueprint that was not lost on rivals giant Tencent Holdings and online search leader Baidu, both of which were already pursuing their own strategic expansion initiatives.

China’s Alibaba buys 5.6 per cent stake in Groupon to rank as No. 4 shareholder in online deals site

Since 2013, Baidu, Alibaba, and Tencent – referred to in the industry as BAT – have made a combined US$75 billion of investments in acquiring strategic partners, according to an HSBC research report.

Of that total, 66 per cent went into e-commerce and nine per cent to online-to-offline (O2O) local services, a strategy to draw shoppers from the internet to stores.

Alibaba, which owns the South China Morning Post, moved into the entertainment business in 2014 when it bought a 60 per cent stake in Hong Kong-listed ChinaVision Media Group for US$804 million. The acquired firm was later reorganised and renamed as Alibaba Pictures.

The BAT group has emerged as the dominant force in mergers and acquisitions on the mainland, with deals last year in highly competitive segments including mobile ride-hailing apps, where Alibaba is an investor in Lyft and Baidu has invested in US-based operator Uber.

Other areas attracting their attention have been online classified ads, online travel and O2O services.

HSBC head of internet research Tsang Chi, the lead author of the report, said the BAT group was estimated to have spent a total of US$47 billion to invest in bricks-and-mortar retailers and another US$797 million in logistics services providers.

Making a mark

“This shift in the investment pattern of BAT has been in line with the rising trend in O2O,” Tsang said.

HSBC lists the tools of the O2O business as promotions, discounts and pre-ordering. Goods and services are bought and booked online and fulfilled offline.

“It’s e-commerce with the emphasis on service rather than goods,” HSBC associate analyst Alice Cai said in a separate report. “We estimate the total addressable market [for O2O] is 10 trillion yuan.”

In a report in December, BNP Paribas said the financial war chests of the BAT group remained full, and it expected no sign of any slowdown in their investments this year.

“We estimate Alibaba could spend, at most, a further US$38 billion in 2016, Tencent US$35 billion and Baidu US$15 billion,” BNP Paribas analyst Ling Vey-sern said.

He pointed out that the driver for more mergers and acquisitions this year would be consolidation in the broader internet industry.

In February, a Chinese consortium led by internet companies Beijing Kunlun Tech and Qihoo 360 Software agreed to take over Norwegian browser company Opera Software in a cash transaction valued at US$1.2 billion.

It marked the first large-scale merger and acquisition deal made this year by Chinese internet companies not backed by one of the BAT players.

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