China's dominant food reviewer and delivery company mulls US$6 billion IPO

China’s restaurant review and delivery giant Meituan Dianping plans to file for an initial public offering (IPO) of about US$6 billion in Hong Kong as soon as this month, according to people familiar with the matter, which would make it the city’s second multibillion-dollar public listing by a tech start-up this year.

Meituan is considering selling about 10 per cent of the company, the minimum required under Hong Kong exchange rules, to avoid dilution, said one of the people, who asked not to be named because the matter is private.

The firm, which counts video games and social media giant Tencent Holdings among its backers, is targeting a valuation of roughly US$60 billion, the person said, although the valuation and fundraising target will not be in the initial filing documents. With the first filing in June, the actual listing of Meituan shares is likely around October, the people said.

It is also considered a prime candidate to sell shares in mainland China as part of the government’s programme to give more opportunities to domestic investors.

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It is not clear yet when the sale of Chinese depository receipts would take place. Meituan declined to comment on a potential IPO and said that if it has specific fundraising plans it will announce them at the appropriate time.

The IPO is another sign of China’s rising might in the technology industry, which has become a flashpoint for trade tensions with the United States.

A generation of up-and-comers like Meituan are emerging to build out an industry that has been dominated by Tencent, Alibaba Group Holding and Baidu. New York-listed Alibaba is the parent company of the South China Morning Post.

Smartphone maker Xiaomi is said to plan raising about US$10 billion by selling shares in Hong Kong and mainland China.

Meituan was most recently valued at US$30 billion, making it the world’s fourth most valuable start-up, according to CB Insights. It is sort of a mash-up of Groupon, Yelp and Deliveroo with restaurant reviews, group-buying discounts and deliveries of food, groceries and other goods. It has recently expanded into areas such as ride-sharing and travel.

With a few taps to navigate its smartphone app, Chinese customers can order up hot meals, groceries, massages, haircuts and manicures at home or in the office.

Founded in 2010 by Wang Xing, Meituan handled US$57 billion of transactions last year between about 320 million active buyers – about the size of the US population – and more than four million merchants.

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The company, however, faces formidable rivals in key businesses. It is competing with entities backed by Alibaba in food delivery, with Didi Chuxing in ride hailing, and even with its own backer Tencent in payments.

Meituan also expanded into bike sharing with a deal for Mobike said to be valued at US$3.4 billion.

An IPO would give Meituan additional capital to compete in existing businesses and even to expand. No final decisions have been made, and details of the offering could change, the people said.

“Meituan has been expanding its business from offline stores selling fresh products to online cab hailing, and also purchased Mobike earlier this year,” said Yang Xin, a researcher at Analysys International. “They are in need of a large amount of capital to support all those businesses.”

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Didi, the ride hailing leader, has also been considering an IPO. Meituan’s rapid push to go public may suck up some of the capital that would otherwise be allocated to Didi.

Meituan’s other existing backers include Booking Holdings, Sequoia Capital, Canada Pension Plan Investment Board, Trustbridge Partners, Tiger Global Management, Coatue Management and Singaporean sovereign wealth fund GIC.

Those investors and more have handed Meituan US$7.3 billion in funding over the past two years. The company has also begun promoting the use of its own digital wallet on its app: it handles about a fifth of overall transactions on its platforms. Tencent accounts for about 60 per cent, while Ant Financial Services Group’s Alipay and others contribute about 20 per cent.