FUND RAISING: Dianping Inches Towards IPO, 55Tuan Disappears

Bottom line: Dianping’s bigger-than-expected fund-raising underscores its popularity among investors, and could pressure it to make an IPO worth $1 billion or more this year to capitalize on positive market sentiment.

Dianping closes $850 mln funding

China’s online group buying space could be closer to getting its first IPO, with word that Dianping, one of the industry’s 2 leaders, has just raised a whopping $850 million in its fifth funding round. The massive funding has actually been in the works since late last year, but kept growing as more investors clamored for a piece of this hot company. The move sends the latest signal that Dianping may be eying an IPO later this year that could raise up to $1 billion or more.

Word of the funding comes as a more advanced IPO plan has gone missing from smaller rival 55Tuan, which was hoping to become China’s first publicly listed group buying site. 55Tuan made a public filing for a New York IPO back in January, and a later filing indicated it planned to sell its shares and begin trading on February 25. But that date has come and gone with no listing, and there’s still no word on the reason for the delays more than 2 weeks later.

These 2 developments aren’t too surprising, since the group buying space has undergone a painful consolidation over the last 2 years that has seen many former high-flyers close or get purchased while only a handful have managed to thrive. Dianping, often called the Yelp (NYSE: YELP) of China for its popular restaurant ratings service, and rival Meituan have emerged as the 2 clear industry leaders, and are probably the only players earning healthy profits.

Now the latest reports are saying that Dianping has formally closed its fifth funding round by raising the large $850 million sum. (English article) A source said Dianping had originally planned to raise just $300 million, but then felt pressured to boost that amount after Meituan raised $700 million in December. (previous post)

Separate reports at that time said investors in Dianping’s latest funding round included the likes of Singaporean sovereign wealth fund Temasek, private equity firm FountainVest and Chinese real estate giant Wanda Group. This finalization of the funding at $850 million shows just how attractive Dianping looks to investors. That means the company could come under growing pressure to make an IPO later this year while investor sentiment for such offerings remains strong.

The strong interest in Dianping and Meituan contrasts sharply with money-losing second-tier survivors like 55Tuan and LaShou, which have become investor pariahs and were anxiously hunting for cash or buyers in their bid to survive. Both 55Tuan and LaShou had previously tried to make New York IPOs about 2 years ago, but withdrew their plans after failing to convince investors of their future viability.

LaShou ultimately sold itself to a state-run conglomerate last October (previous post), and I suspect its story will end with either its closure or perhaps a sale to another buyer. 55Tuan had been hoping to buy itself some time with its latest plan for an IPO aimed at raising a modest $65 million, announced at the start of this year. It had even picked out the ticker symbol of WOWO and selected the Nasdaq when it announced it planned to list about a week after the recent Lunar New Year holiday.

But now that date is more than 2 weeks in the past, and there’s still no new date or word on the reason for the delay. At least one previous report cited legal issues related to stock options as a factor, though I suspect the real reason is lack of investor interest. I previously said the company had an 80 percent chance of making it to market, but this lingering  ongoing delay might force me to lower that back to my original 50-50 prediction. In the meantime, investors may have to wait for Dianping or Meituan to finally get a chance to buy into China’s group buying space.

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