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  • Greater China

Alibaba merges food delivery units, raises $3b

  • Holden Mann
  • 27 August 2018
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Alibaba Group has merged Ele.me, a China-focused food delivery platform that it acquired earlier this year, with its local services platform Koubei. The combined platform has raised $3 billion from investors including Alibaba and SoftBank Group.

According to Alibaba’s quarterly financial results, the merger is aimed at creating a comprehensive local services offering that can leverage the power of Alibaba’s corporate ecosystem and business strengths. Following the integration, Koubei is expected to provide a range of service offerings such as incorporating users into Alibaba’s 88VIP loyalty program, as well as supporting convenience store operators and Alibaba’s Hema supermarket chain.

Alibaba has established a holding company for Koubei and Ele.me that will be capitalized separately with investments from Alibaba and its financial services affiliate Ant Financial, along with third-party investors such as SoftBank.

Alibaba agreed to acquire Ele.me in April in a transaction that valued the company at $9.5 billion. Ele.me was founded in 2009 and claims to work with more than 1.3 million restaurants across 2,000 cities in China, serving over 260 million customers. Last year the company merged with Baidu Waimai, the food delivery business of Chinese internet giant Baidu.

Koubei was created in 2015 as a joint venture between Alibaba and Ant Financial. The platform has raised capital from both companies as well as several outside investors, including Silver Lake, CDH Investments, Yunfeng Capital, and Primavera Capital; the GPs led a $1.1 billion funding round for Koubei in 2017.

For the three months ended June 2018 Alibaba reported revenue of RMB2.6 billion ($395 million) in the consumer services category, a new division established following the acquisition of Ele.me. The company’s total revenue came to RMB80.9 billion for the quarter, compared with RMB50.2 billion for the same period in 2017.

According to Alibaba’s most recent annual report, its revenue for the year ended March 2018 came to RMB250 billion, up from RMB158 billion the year before. Over the same period net profit rose from RMB43.7 billion to RMB64.1 billion.

Alibaba competes in the local services space with Meituan-Dianping, China’s leading online-to-offline (O2O) platform that offers lifestyle services ranging from hotel booking to food delivery to bike-sharing. Created in 2015 by the merger of O2O players Dianping and Meituan, the company has a number of backers including Tencent Holdings – the largest outside shareholder with a stake of about 20% – Sequoia Capital China, Trustbridge Partners, Coatue Management, Hillhouse Capital and Tiger Global Management.

Earlier this year Meituan-Dianping filed for a Hong Kong IPO, reportedly seeking to raise more than $4 billion at a valuation of $60 billion. The company plans to list under a weighted voting right (WVR) structure that allows company founders to retain control even if their equity interest has fallen below 50%. The Hong Kong Stock Exchange began to accept WVR arrangements earlier this year for innovative companies of a certain size.

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