The Next Big Thing

'China's Groupon' Meituan and Yelp-like Dianping likely to merge to create country’s biggest O2O services provider

PUBLISHED : Wednesday, 07 October, 2015, 6:08pm
UPDATED : Wednesday, 07 October, 2015, 6:35pm and Dianping Holdings, two of China’s biggest tech start-ups, are close to merging and the two former rivals will announce a deal in the next few days, according to media reports.

If Meituan, dubbed “China’s Groupon” and restaurant-review site Dianping are set to team up - as The Wall Street Journal and China's largest news portal claim – they would create the country’s biggest online-to-offline (O2O) services provider with a combined value of over US$15 billion. 

READ MORE: Group-buying site Dianping a top draw as investment activity in China's media and tech industries hits record US$15.56 billion in H1

The deal seems prudent as it comes not only at a time of industry consolidation in China but will also help both partners out financially as O2O companies tend to burn cash due to their reliance on heavy subsidies and discounts to outspend their rivals.

The move follows other landmark deals in China’s tech sector in the last couple of years. 

These include online video site Youku’s acquisition of rival Tudou in a US$1 billion stock deal in 2012 and the merger between advert sites, which is listed in New York, and earlier this year in a deal that may have taken their combined value to US$10 billion.

However the deal that attracted more attention this year was the merging in February of Alibaba-controlled Kuaidi Dache and Tencent-invested Didi Dache to create China’s market leading taxi-booking app, which at the time was valued at around US$6 billion.

READ MORE: Didi Kuaidi, DJI among 10 Chinese start-ups named 'global growth leaders' ahead of WEF Dalian summit

The move was believed to be strongly motivated by both rivals’ desire to stymie competition from San Francisco-based Uber, which has received investment from Baidu, China’s top search engine, and recently announced plans to target 100 Chinese cities.

Chinese e-commerce giant Alibaba and gaming and social titan Tencent also have respective interests in the upcoming merger.

Tencent bought a 20 per cent stake in Dianping worth US$ 400 million in 2014. It also played a role in another round of fundraising in March when the company raised a further US$850 million. 

Alibaba participated in Meituan’s B and C fundraising rounds and now owns between 10 and 15 per cent of the company.

Dianping started out like San Francisco-based Yelp, which specialises in crowd-sourced reviews, but has since expanded to include group-buying and is worth a reported US$4 billion. 

READ MORE: Meituan apologises for snafu with food-delivery app that blocked rivals

Meituan is an even bigger player in the group-buying field. In January, it raised US$ 700 million and was valued at US$7 billion. Foreign media have reported that it is planning another round of fundraising to bump its valuation up to US$11 billion.

Baidu, considered the third player in the triumvirate of China’s internet kings, will be on the other side of the playing field as its group-buying service Nuomi will compete head-on with the newly merged company. 

In June, Baidu announced a plan to invest a further US$3.2 billion in Nuomi.