Alibaba makes biggest overseas bet with US$1b Lazada deal
Alibaba Group Holding has agreed to buy a controlling stake in Southeast Asian online retailer Lazada Group for about US$1 billion, its biggest deal overseas, as the Chinese e-commerce giant seeks fertile new turf while growth slows at home.
Lazada, founded by Germany’s Rocket Internet in 2012, is headquartered in Singapore and also operates in Malaysia, Indonesia, the Philippines, Thailand and Vietnam. That affords Alibaba a chance to tap the region’s growth potential, but the market is also competitive and fragmented, with only a fraction of total retail sales currently conducted online.
“Southeast Asia has a lot of overlap with China in terms of consumer habits, intra-regional trade and tastes,” said Duncan Clark, chairman of investment advisory firm BDA China and author of a book on Alibaba. “Rocket in this case has managed to create a successful, multi-market player in a region which needs scale and breadth to be viable. This has obvious appeal to Alibaba.”
Lazada saw revenue jump 81 per cent to US$190 million in the first nine months of 2015, while active customers more than tripled to 7.3 million. However, its adjusted loss before interest, tax, depreciation and amortisation more than doubled to US$212.9 million. Rocket reports 2015 figures on Thursday.
Under the deal announced on Tuesday – Alibaba’s biggest overseas investment so far – the firm will buy about US$500 million of newly issued Lazada shares. The rest will be bought from current shareholders. These include Britain’s biggest supermarket operator, Tesco, which said it would sell an 8.6 per cent stake for US$129 million, valuing Lazada at US$1.5 billion. Rocket and Swedish investor Kinnevik will also sell shares.
Neither Alibaba nor Lazada specified the size of the stake purchased, but the sales imply a two-thirds holding. Alibaba also has the option, 12-18 months after the deal closes, to buy remaining stakes from Lazada shareholders.
China is getting tougher for Alibaba. In the last three months of 2015, the total value of goods transacted on the company’s e-commerce sites rose by its slowest annual rate in more than three years.
Rocket Internet is known for funding and ultimately selling start-ups that follow the model of successful existing businesses. When Lazada first emerged, it was pegged as a Southeast Asian version of Amazon.com.
The deal isn’t Alibaba’s first investment in Southeast Asia. The Chinese company also has a stake in logistics firm Singapore Post.
Alibaba Group is the owner of the South China Morning Post.