PE-backed Chinese car trading platform Souche buys rival

The deal points to consolidation in the car trading space, which has seen a string of substantial funding rounds in the last 18 months, and a clear alignment between major players and either Alibaba or Tencent Holdings. Last month, Tencent led an $818 million Series C round – the largest ever seen in the segment – for Chehaoduo, the parent of Guazi.

A Souche statement noted that the acquisition of Cheyipai has created a group of four market leaders in used car trading specifically, with Souche joining Guazi, Uxin, and Renrenche. It added that there is also ample room for growth, with the three incumbents accounting for less than 10% of total used car trading volume – online and offline – in 2017.

Founded in 2012, Souche operates a software-as-a-service (SaaS) system that is said to connect more than 30,000 used car dealers, 60,000 second-tier new car dealers, and 5,000 auto parts and maintenance service providers. On closing a $335 million Series E round led by Alibaba last November, it claimed to have facilitated transactions worth RMB60 billion ($9.5 billion) in 2016 and RMB91.5 billion in the first nine months of 2017. The company receives a commission on each transaction.

Souche has also branched into car leasing, working with automobile manufacturers, offline car dealers, and Ant Financial, Alibaba’s financial services affiliate. The service, known as Tangeche, has established more than 1,600 stores nationwide.

The acquisition is being positioned as a strategic collaboration under which Cheyipai will retain its brand, team and structure, but also deepen Souche’s exposure to used car trading. Cheyipai specializes in providing pre-sale vehicle inspection services and running online auctions. Established in 2006, its network covers 600 cities and 65,000 used car dealers, with more than three million sales facilitated to date.

Cheyipai's most recent funding round came in 2015, when Chinese social networking platform Renren led a $100 million investment. Existing backers Sequoia Capital, Matrix Partners, Morningside Ventures, and CITIC Capital also participated. This took its total capital raised to around $185 million.

Souche, meanwhile, has received more than $600 million and last year’s Series E was its third round in 12 months. The Series D was led by Warburg Pincus and the Series E by Ant Financial and Ucar. Past investors include Sequoia Capital, Ferry Venture Capital, VMS Investment Group, ClearVue Partners, Zuoyu Capital, Haitong International, CreditEase and Morningside Ventures.

Used car trading start-ups have typically pursued different parts of the value chain. The B2B model has been the most popular, but larger players have sought to expand their coverage into C2B, B2C and C2C. According to iResearch Consulting, internet-facilitated trading accounted for 12.8% of China’s used car transactions in 2017. The figure is expected to reach 13.4% this year with 14.6 million vehicles traded.

Uxin last raised fresh capital in January 2017, securing a $500 million round led by TPG Growth, Jeneration Capital, and China Vision Capital, while Renrenche raised $200 million last September with ride-hailing app operator Didi Chuxing the sole investor. The likes of Mychebao and Tiantian Paiche have also received sizeable rounds.

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• Topics
• Greater China
• Technology
• Investments
• China
• TMT
• automobiles
• M&A
• Alibaba Group
• Warburg Pincus Asia
• Sequoia Capital
• Morningside Technologies