Deal focus: Dianping-Meituan war reaches logical conclusion

Leading Chinese online-to-offline (O2O) services platforms Dianping and Meituan first entered into merger talks earlier this year, but nothing materialized. The companies were sitting pretty, having closed their most recent funding rounds at valuations of $4 billion and $7 billion, respectively.

Then a few months ago Meituan returned to the market seeking more capital at an even higher valuation. The investor response was lukewarm, according to industry sources. With China's public markets struggling, there was a reluctance to commit even more money to a battle for market share defined by how much they could offer in subsidies to users and in commissions to merchants. With each company said to be burning through about $1 million per day, they agreed to merge.

"This means a lot of marketing costs and subsidies can be saved," says J.P. Gan, managing partner at Qiming Capital Partners, which is an investor in Dianping. "There is little overlap between their operations in different cities and they have a lot of synergies. Strategically it makes sense."

The combined entity will have a valuation of around $15 billion, although both companies will retain their respective brands and management structures, and operate their businesses independently.

Founded in 2003, Dianping established itself as a provider of restaurant reviews and then group-buying services, making money through a combination of paid listings and discount offers. It subsequently introduced additional services such as instant payment, restaurant reservations, and take-out delivery. It has more than 200 million users and leverages its presence in 250 cities nationwide.

Meituan was set up in 2010 as new group-buying sites were emerging at a frenetic pace in China. Meituan trailed rivals Lashou and WoWo in 2011, but outlasted them by keeping its focus on local services - consumer-related offers on hotels, restaurants and cinema tickets - rather than consumer goods. It has more than 130 million annual active purchasers and branches in 1,100 cities.

While Meituan enjoys greater transaction volume by virtue of its exposure to lower-tier cities, Dianping concentrates on tier-one and two locations. Theirs is the second merger of rivals in China's China's O2O space following the unification of ride-hailing app operators Didi Dache and Kuaidi Dache.

Gan says consolidation in various O2O sectors, such as food delivery and restaurant booking platforms, is a norm in the US. For instance, Groupon acquired OrderUp to boost its food delivery exposure while hotel-booking site Priceline Group bought online restaurant reservations service OpenTable.

"It's a natural evolution - if you can't stand until the last minute, you merge with the big ones," he says. "If you looked at what happened with the three internet portals - Sohu, Sina and Netease - they couldn't kill each other and they didn't merge, so each one got a small piece of the market. Then Baidu took their market away. Chinese founders have learnt from this and they don't let too much ego get in the way of businesses."

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• Topics
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• Technology
• Consumer
• Greater China
• TMT
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• China
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• Qiming Venture Partners
• Alibaba Group
• Tencent