
Deal focus: Meituan makes a strategic move with Mobike
Meituan-Dianping's acquisition of Mobike means stellar returns for some of the early investors in the Chinese company - and more layers of intrigue in the competitive dynamic between Alibaba Group and Tencent Holdings
Mobike and Ofo together control over 90% of China’s bike-sharing industry but are engaged in a battle for market share that has them spending money on new bikes rather than pursuing profitability. After two years of explosive growth, investors awaited the inevitable merger, but it never came to fruition.
“Some shareholders in Mobike thought that a merger with Ofo wouldn’t fundamentally change the industry dynamic. The bike-sharing industry is highly competitive and barriers to entry are quite low. For example, Alibaba is also investing in another company Hellobike. Hence the combination of Mobike and Ofo would not necessarily create a dominant player,” says Jeremy Choy, a managing director and head of M&A at China Renaissance, a financial advisor for Mobike.
Attention then shifted to China’s largest local services platform, Meituan-Dianping, which has ambitions to enter the transportation vertical. The company launched ride-hailing services in Nanjing last year and in Shanghai this year, competing with dominant player Didi Chuxing.
Last week, Meituan-Dianping duly announced that it would buy control of Mobike. The deal translates into an equity valuation of about $2.7 billion, with Meituan-Dianping also assuming RMB4.5 billion ($700 million) in debt. Investors in Mobike were offered a variety of cash-and-share deals, although in most instances the cash component was larger. For example, Joy Capital, which was the sole investor in Mobike’s Series A in 2015 and re-upped in the next three rounds, took 90% of its interest in cash. The VC firm stands to make an 11x money multiple on the deal.
“This transaction represents a very strategic move for Meituan-Dianping. The company is serious about growing into the transportation space, and bike-sharing serves as an important first- and last-mile connector in transportation. Mobike is a good fit, given Ofo is already aligned with other parties,” says Choy.
Alibaba is main shareholder in Ofo, leading the latter’s $700 million Series E round last year and a $866 million round in March this year. Didi, which entered the bike space in its own right is also an investor in Ofo. Meanwhile, Tencent Holdings is a significant shareholder in both Meituan-Dianping and Mobike. Industry participants note that the Mobike acquisition has created a clearer delineation in transportation along the Alibaba-Tencent axis: Ofo and Didi sit with Alibaba on one side and Meituan-Dianping and Mobike are with Tencent on the other.
“Meituan-Dianping is a strong company, and I think they’ll do well with Mobike in terms of providing high-quality transportation services,” says Helen Wong, a partner at Qiming Venture Partners, an investor in both companies. “Alibaba has a different strategy. For them, it’s more about whether Alibaba can put Hellobike, Ofo and other bike-sharing companies together and use its payment services. Tencent doesn’t have an intention to expand into transportation, and it’s happy to see these portfolio companies forming an alliance.”
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