INTERNET: Meituan Gets New Funds, 2015 IPO Looming?

Bottom line: Dianping or Meituan is likely to mount an IPO bid next year, in a deal that could value either at around $5-10 billion and win a premium as China’s first group buying site to list.

Meituan gets new mega-funding

China’s newly consolidated group buying sector could be close to making its first IPO, with word that leading operator Meituan is on the cusp of landing a massive $700 million in new funding. Such a huge amount would be the company’s fourth round of funding since 2010, and would follow not long after it reportedly raised $300 million earlier this year. That kind of funding frenzy often comes just before an IPO, which leads me to expect we could finally see Meituan become China’s first publicly listed group buying Internet company with a New York IPO perhaps in the first half of next year.

This kind of big fund-raising in the group buying space only resumed this year, following 2 years of painful consolidation that saw many former high flyers merge or fold. The current field of players is now much smaller, probably numbering less than a few dozen, with Meituan, as well as 55tuan and restaurant ratings site Dianping as some of the remaining top players.

According to the latest reports, Meituan’s newest funding round is being led by Sequoia Capital, one of its earliest investors, and the $700 million would value the company at around $5 billion. (English article) The report adds this mega funding would be the company’s last before an IPO, though it also says Meituan is in no rush to make such an offering.

But if current market sentiment remains strong into the first half of next year, Meituan would be foolish not to consider an IPO during that time. Most importantly, such an offering would give Meituan a first-to-market premium among China’s group buying sites, since none have successfully managed an IPO.

Former high-flyer LaShou previously tried several times to make an IPO at the height of the industry’s turmoil, but failed each time. It was ultimately purchased in October by SanPower Group, a conglomerate that owns a number of struggling online and offline retail assets, leading me to call the purchase a misfit and predict that LaShou would ultimately fade into obscurity. (previous post)

Meituan hasn’t been the only one in the space to raise big capital this year. In February, Dianping, often called the Yelp (NYSE: YLP) of China, sold 20 percent of itself to Internet titan Tencent (HKEx: 700) for an undisclosed price. (previous post) Like Meituan, Dianping is already quite profitable. Thus assuming the 2 companies have similar valuations, the Tencent investment would have been around $700 million to $1 billion.

Like Meituan, Dianping has said repeatedly it wants to make an IPO but is in no rush to do so. But both companies also have numerous backers who may feel differently, and may be looking to get some returns from their investments after waiting 5 years or more. The first-to-market premium is also a big consideration, and neither Dianping nor Meituan would lightly hand over that premium to the other or to a third party like 55tuan.

In addition to Sequoia, Meituan’s current backers include General Atlantic and e-commerce giant Alibaba (NYSE: BABA). All of those investors are acutely aware that 2014 has been a banner year for Chinese Internet IPOs in New York, and that once the current strong sentiment wanes it could be another 2 years or more before a similar window opens. Accordingly, I do expect we’ll probably see at least one group buying site make an IPO bid sometime next year, which could do reasonably well as investors clamor for an opportunity to buy into the group buying space.

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