PE investors agree $8.7b take-private of China's 58.com

Assuming the deal receives shareholder approval, it will be the second-largest PE-backed buyout in China, according to AVCJ Research. The top spot is occupied by another privatization of a US-listed company. Internet security software provider Qihoo 360 was purchased by a more diversified consortium in 2016 at a valuation of $9.3 billion. It went on to re-list in Shanghai.

The 58.com consortium comprises Warburg Pincus, General Atlantic, Ocean Link, and Jinbo Yao, the company's chairman and CEO. Ocean Link, which targets travel, tourism, and related consumer subsectors, initiated the deal in April with an offer of $55 per American Depository Share (ADS). Warburg Pincus and General Atlantic got involved a month later.

The final offer equates to $56 per ADS, a 19.9% premium to the April 1 closing price. In mid-January, 58.com’s stock was trading above $69 – an eight-month high – but plunged as low as $43.26 over the ensuing eight weeks due to the COVID-19 outbreak. It spiked 13% on April 2 in response to Ocean Link’s offer, closing at $52.76. The agreement prompted another spike, with 58.com up 9.8% at $54.77 as of mid-morning trading on June 15.

The deal will comprise rollover equity from existing shareholders plus up to $3.5 billion in debt from Shanghai Pudong Development Bank and other lenders, according to a statement. The consortium already has 44.1% of the voting power, largely due to Yao’s 10.2% stake, which has a voting weight of 42% due to the dual-class share structure. Tencent Holdings is the largest external shareholder with a 22.6% stake.

58.com operates China’s largest online classifieds marketplace, based on monthly unique visitors across its website and mobile apps. The company, which listed in 2013, covers categories such as real estate, jobs, automotive, second-hand goods, and local and business services. The 58.com portfolio comprises 58 business lines, some developed through M&A and others organically.

58.com bought a substantial stake in competitor Ganji in 2015 and fully acquired the company in 2017, while real estate listing platform Anjuke was purchased in 2015. Online-to-offline local services player 58 Home, C2C used car trading platform Chehaoduo – formerly known as Guazi – and second-hand goods marketplace Zhuan Zhuan were all established in-house and then spun out as standalone entities. They have since raised third-party funding.

The company had more than 580 million users across its mobile apps in 2019 as well as 3.3 million paying business users who receive a range of specialist services. They buy entry-level online marketing packages or more comprehensive subscription-based membership services. Revenue came to RMB15.6 billion ($2.2 billion) in 2019, up from RMB13.1 billion the previous year. Membership services and online marketing accounted for 29% and 65%, respectively. Over the same period, net profit rose from RMB2 billion to RMB8.3 billion.

58.com previously warned that its business would be significantly impacted by COVID-19. It projected first-quarter revenue would be RMB2.16-2.26 billion, down from RMB3 billion in the same period of 2019. The company has scaled back spending in areas such as discretionary advertising in order to mitigate the adverse impact on profit. However, it added in its latest annual report that business had started to return to normal at the end of February.

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• Topics
• Greater China
• Technology
• Consumer
• Buyouts
• China
• Ocean Link
• Warburg Pincus Asia
• General Atlantic
• TMT