The merger of China’s Meituan, a “Groupon for China,” and Dianping, “China’s Yelp,” to create a $15 billion giant showcases the trend toward consolidation and race for market leadership in a year where deals involving Chinese companies have reached $58.4 billion this year, nearly double the amount last year. This deal, the largest in China’s Internet market, follows the $6 billion merger early this year of Didi-Kuaidi in the fast-growing ride-sharing market.
The merger of China’s leaders in ride sharing and group buying markets sees rivals powering up and eyeing gains by jointly capitalizing on massive opportunities. From dining to lodging to entertainment, Meituan and Dianping, which will remain as separate brands, collectively covering 82 percent of the group-buying business in China. Likewise, Didi-Kuaidi owns 80 percent of China’s ride-sharing market.
Instead of going public in the current volatile market conditions, Chinese companies in several well-funded sectors such as ride sharing and group buying are bulking up by raising more venture capital or going the M&A route. After all, VC firms cannot hang on to their winning portfolio companies forever, and the stakes for market leadership in these sectors are high.
Globally, mergers and acquisitions are soaring and proving to be an attractive alternative to IPO listings. In China, the record highs seen on the IPO powerhouses of the Shenzhen, Shanghai and Hong Kong exchanges in the first half of 2015 are slowing now too with stock market volatility.
Alibaba-backed Meituan and Tencent-backed Dianping have substantial capital to draw upon to conquer new territory. Meituan raised $700 million in January at a valuation of $7 billion while Dianping raised $850 million in April, valuing the company at roughly $4 billion. Many of China’s prominent VCs, including Qiming, Lightspeed, Sequoia and Northern Light, have financed these market leaders at an early stage. Look for the newly cominbed Meituan and Diapoing, 60 percent owned by Meituan shareholders, to raise even more finance. Current CEOs — Wang Xing of Meituan and Zhang Tao of Dianping — will share leadership as co-CEOs.
The Meituan-Dianping combo puts pressure on still another of China’s Internet giants in the same space. Baidu is investing $3.2 billion over three years into its own local services platform Nuomi.
China, the world’s largest smartphone market, boasts huge potential for O2O services, which are still in the early stages. According to Internet consultancy iResearch, Chinese users of location-based services could rise 29 percent to 400 million by 2017. As smartphones and tablets are increasingly used to book everything from car rides to hotel rooms, the O2O market, estimated at $1.6 trillion, is large enough for multiple players.
Five-year-old Meituan, part-owned by Alibaba, is hailed as the leader of China’s “O2O” (online-to-offline or location-based services market) space, holding more than half the $12.1 billion group buying market in China.
Meituan, operating in 1000 cities in China and claiming 20 million daily mobile users, reported $7.4 billion in transactions in the first half of this year, and aims to more than double that figure by year end.
Tencent owns about 20 percent of Dianping, which has been in operation since 2003 and now spans 1,100 Chinese cities plus 14 million-plus merchants on its platform. Dianping focuses on restaurant reviews and offers group deals. Dianping reported more than 200 million monthly active users in the second quarter, with 85 percent of page views coming from mobile users.
