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China’s Two Biggest Tech Startups Merging to Form $15B O2O Company

| Oct 08, 2015 10:11 AM EDT

China's largest online-to-offline service startups have announced their merger to end the competition for customers and lead in the market.

Two of China’s biggest tech startups are merging to create a company with a combined value of more than $15 billion, said to become the country’s biggest online-to-offline provider of services ranging from movie tickets to restaurant bookings, the Wall Street Journal reported.

Citing sources privy to the situation, the report said that the merger between rivals Meituan.com, China's version of Groupon.com, and Dianping Holdings Ltd., a restaurant review app, will be announced in the coming days.

The deal by the two startups is expected to create a market leader in the business.

According to the report, the deal follows the model or template set out by the $6-billion combination of the two rival taxi-hailing services to form Didi Kuaidi Joint Co. in February. Through the merger, the new company was able to raise $3 billion from investors at a $16-billion valuation.

Meituan and Dianping investors are expecting a similar result as the two companies, which specialize in deals for restaurants, movie tickets, and other offline services, unite to compete with Baidu Inc.'s group-buying platform, Nuomi.

In June, Baidu announced plans to invest $3.2 billion in Nuomi over the next three years as it intends to connect online users with offline services.

The sources said that the merger is expected to raise capital at a new higher valuation and Meituan's fundraising plan had been put on hold until the merger has been completed, while Dianping reportedly raised money at a $4.05-billion valuation in March. The new valuation set by their next fundraising round could raise more than the expected figure, the report said.

Meituan and Baidu executives also said that commission rates, known as "take rates," would be raised from between 2 percent and 5 percent to 5 percent and 7 percent in the longer-term to be able to make money.

Among venture-backed companies in China, Meituan and Dianping were considered to be two of the most prolific fundraisers this year.

Meituan.com raised $700 million in January putting its valuation at $7 billion with investors that included fund manager Hillhouse Capital Group and Fidelity Management & Research Co. Its earlier backers included Alibaba as well as private equity and venture-capital firms Sequoia Capital China, Boyu Capital and General Atlantic Inc.

Meituan also generated transactions worth 47 billion yuan ($7.4 billion) in the first half of the year, exceeding its full-year volume for 2014, the company said.

On the other hand, Dianping raised $850 million in March from a group of investors that included smartphone maker Xiaomi Corp., which placed a $4.05-billion valuation on the company. Its investors also included Tencent Holdings Ltd., Singapore state investment company Temasek Holdings Pte. Ltd., private-equity firm FountainVest Partners, and Chinese conglomerates Wanda Group and Fosun Group.

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