Barely a month goes by these days without rumor of a new acquisition target for Baidu (Nasdaq: BIDU), which suddenly seems anxious to buy up major assets in its bid to diversify beyond its core search business. The latest rumors say Baidu is close to a deal to purchase Nuomi, the group buying unit of social networking leader Renren (NYSE: RENN). As one of China’s most profitable Internet companies, Baidu is hoping to take advantage of low valuations of Chinese Internet firms, many of which are running low on cash and have had trouble attracting interest from foreign investors. Baidu, by comparison, has plenty of resources to make such purchases, including $2.5 billion in cash from 2 recent major bond sales.
According to the latest reports, Baidu has been talking with Renren about a purchase of Nuomi for the last 2 months, and talks are now in their final stages. (English article; Chinese article) The reports say that Renren would like to simply sell a strategic stake in Nuomi, while Baidu would prefer to buy a controlling stake or simply purchase the unit outright. This latest tie-up would come less than 3 months after Nuomi was rumored to be in talks for a similar tie-up with LaShou, one of China’s leading group buying sites. (previous post)
This particular deal is the first we’ve seen in a while in the group buying space, a previously popular segment that has undergone a major downsizing over the last year due after a major explosion in new start-ups in 2009 and 2010. The latest reports say Baidu also approached Dianping, one of the few profitable group buying sites, about a potential merger, but that Dianping said it prefers to remain independent and eventually make its own initial public offering.
We haven’t seen any financials for Nuomi in any of the latest news reports, but I suspect the company is probably losing money or perhaps at the break-even point. But profitability doesn’t seem to be a major concern for Baidu, whose name has appeared repeatedly in the last few months as an interested buyer for Internet assets in a wide array of product areas.
Baidu was in the headlines a month ago when it purchased a controlling stake in online app store 91Wireless for $1.1 billion, with plans to buy the entire company for about $1.9 billion. (previous post) Before that, it made headlines in May when it agreed to pay $370 million for the online video sharing assets of PPS. The company was also reportedly previously interested in buying Sogou, the online search site being shopped around by web portal operator Sohu (Nasdaq: SOHU).
Baidu is hardly alone in its current sudden interest in M&A, as it and other cash-rich companies look for bargains in their bids to diversify beyond their core businesses. E-commerce leader Alibaba has been another major acquirer, purchasing strategic stakes earlier this year in Sina’s (Nasdaq: SINA) Weibo microblogging site and online mapping firm AutoNavi (Nasdaq: AMAP). Leading Internet firm Tencent (HKEx: 700) entered the fray last month when it joined a group that purchased a controlling stake in leading global game developer Activision Blizzard (Nasdaq: ATVI).
Of these big 3 acquirers, I would say that Alibaba’s strategy looks the best due to its focus on companies that can help to expand its e-commerce services onto the mobile Internet and social networking realms. Tencent’s strategy doesn’t seem to offer many synergies (previous post), and Baidu seems too eager to chase just about any asset that’s looking for investors. At the end of the day, I would expect we’ll probably see Baidu invest $100 million or more for a strategic but non-controlling stake of Nuomi. Then look for the company, together with Alibaba and possibly Tencent, to make a few other major purchases in the remainder of the year.
Bottom line: Baidu is likely to purchase a non-controlling strategic stake in group buying site Nuomi as part of its recent buying binge to diversify beyond its core search business.