VC investors primed for exit with China Youzan reorganisation

Hillhouse and Matrix - which own 4.5% and 3%, respectively, of Youzan Technology - are among the largest of 18 shareholders who will sell to China Youzan. Others include Gaocheng Capital, Tembusu Partners, and Baidu, according to a filing.

They will be compensated in the form of China Youzan stock. The company, which already has a 51.9% holding in Youzan Technology, will finance the move to 100% ownership by issuing new shares to those investors priced at HKD 0.18 apiece. The new shares represent 44.12% of the company's enlarged share capital.

China Youzan stock peaked at HKD 4.19 in 2021 but then fell sharply, hitting a low of HKD 0.07 in late 2022. It closed on HKD 0.15 on May 22, prior to the latest announcement, giving the company a market capitalisation of HKD 2.55bn.

China Youzan was called China Innovationpay Group - an investment holding company primarily exposed to payment services - until it acquired a majority stake in the eponymous e-commerce SaaS business in 2018. The deal was financed through the issuance of HKD 2.1bn in new shares to Youzan Technology investors.

AVCJ Research has records of investments in Youzan Technology by Ameba Capital and Matrix in 2013 and 2014. It is unclear when Hillhouse and Tembusu invested but they were listed as shareholders at the time of the China Innovationpay Group deal. Baidu committed USD 45m to Youzan Technology in 2019.

Ning Zhu, the founder of Youzan Technology who subsequently became CEO and the largest individual shareholder in China Youzan, launched a take-private bid for the company in 2021. This included the proposed in-specie distribution to shareholders of China Youzan's interest in Youzan Technology. The bid failed.

China Youzan - largely through Youzan Technology - provides various SaaS and payment solutions to e-commerce merchants, although it has penetrated the offline space as well. Its business is now divided into four core customer categories: content monetisation, direct-to-consumer brands, and store digitisation.

Revenue reached CNY 1.8bn in 2020 - three times the 2018 level - but then moderated to CNY 1.58bn in 2021 and CNY 1.49bn in 2022. Even when revenue was peaking, the company still posted a loss of CNY 545.6m. The company managed to stem the bleeding in 2022 when significant layoffs resulted in a loss of CNY 645.7m, down from CNY 3.29bn.

However, China Youzan claimed that Youzan Technology has experienced solid growth in the past five years, with gross merchandise value (GMV) increasing from CNY 32.6bn in 2018 to CNY 101.4bn in 2022. Revenue came to CNY 1.17bn in 2022, down from CNY 1.28bn the previous year, while the net loss narrowed from CNY 1.12bn to CNY 636.9m.

"The uptick in the business of Youzan Technology prior to the long subsistence of the COVID pandemic demonstrates the strong potential it has in the post-COVID era, as the Chinese economy continues to recover," China Youzan said.

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• Topics
• Greater China
• Consumer
• Trade sale
• Technology
• China
• e-commerce
• Gaocheng Capital
• Hillhouse Capital Management
• Matrix Partners
• Baidu
• Tembusu Partners