Tencent's GroupNet: a group buying consolidator
GroupNet's role as consolidator in China's group buying space could grow, backed by its strong ties to Tencent and following its raising of $40 million in new funds for acquisitions.
The latest media reports don't cite Lin saying who provided this latest $40 million in new funds; but I wouldn't be surprised if most or all of the money came from Tencent, which has lots of cash and can now use GroupNet as a base to try and build China's first profitable group buying company.
Of course the irony in all this is that the $40 million in GroupNet's warchest is a pittance compared to the massive amounts of money that investors have poured into group buying sites over the last two years. The frenzy reached a climax in early 2011 when two of the industry's leaders, LaShou and 55tuan, raised $111 million and $200 million, respectively as investors all tried to bet on who would become China's next Groupon. The list of investors at that time included a number of big names, such as Goldman Sachs (NYSE: GS) for 55tuan, and London's Milestone Capital Partners for LaShou.
But much has changed since the zenith of the frenzy, with LaShou making several attempts at an IPO to raise desperately needed cash while 55tuan at one point was reportedly failing to pay some of its suppliers. It's unclear how much a big name like LaShou or 55tuan might sell for at this point, though I suspect that both companies have little or no cash left and perhaps could sell for as little as $20 million.
Obviously GroupNet, Dianping or any other acquirer will need to move carefully to avoid buying assets that are beyond redemption and could ultimately pull down their own healthier operations. But I expect that 24Quan, LaShou and 55tuan all have potentially valuable assets to offer for a savvy acquirer, and we could see as many as two or three major deals announced by the end of the year.
Bottom line: GroupNet's role as consolidator in China's group buying space could grow, backed by its strong ties to Tencent and following its raising of $40 million in new funds for acquisitions.
The opinions expressed in this article are the author's own. To read more commentaries from Doug Young, click on youngchinabiz.com