Deal focus: Newlink doubles down on new direction

For investors in China’s private markets, and their portfolio companies, 2022 was a challenging year, with investment falling by more than half from 2021.

Newlink Group, operator of a platform that helps drivers locate the best-value gas stations and charging piles, defied market conditions to raise CNY 1.87bn (USD 277m) over the course of the year. One of its business units, charging pile specialist NaaS Technology, was also spun out and went public through a reverse merger on NASDAQ.

“A reverse merger in those conditions is clearly difficult. What we have demonstrated is that, even in a difficult market, a good company in a promising industry gets attention,” said Alex Wu (pictured), president and CFO of NaaS Technology.

Wu used to be a managing director in Bain Capital’s private equity business. The GP is a sizeable investor in Newlink, having led a USD 200m round in March 2021. At the end of 2021, Rise Education, another Bain portfolio company, was divesting assets. It became a suitable shell entity for a reverse merger, so Newlink jumped at the opportunity. The deal was announced in early 2022 and NaaS listed in June.

Having served as acting CFO of Rise Education from September 2011, Wu led the combination with Newlink’s assets, which led to the formation of NaaS.

“Initially, it may seem almost impossible to do it because of things that are either out of your control or that change unexpectedly. You just deal with those challenges one by one. You do as much preparation as possible and ensure your whole team is focused on the key objective,” said Wu.

NaaS, China’s first overseas-listed EV charging business, now has a market capitalisation of approximately USD 1.2bn. It is still trading at a discount to the last closing price prior to the reverse merger being announced, but an unnamed institutional investor was confident enough to commit USD 30m through a private placement in December.

Other Newlink Group entities have also continued to raise capital. Late last year, its corporate solutions unit, which provides energy management services to the likes of Xiaomi and China Merchants Bank, secured CNY 400m in funding. Another business focused on gas station digitalisation, raised CNY 300m.

Zhen Dai, Newlink’s founder and chairman, launched the business in 2016 with a view to digitalising the energy value chain. At the time, electric vehicles (EVs) had yet to take off. The company focused on conventional fuel vehicles, creating an information network that informed drivers where in the vicinity they could buy gas and at what price.

A logistics unit came next, which connects refineries, chemical plants, oil depots, and petrol stations to enable one-click oil ordering and transportation, and then the gas station digitalisation platform. That business not only targets gas station operators but also aims to convert independent gas stations into Newlink-branded comprehensive consumption hubs that offer retail options as well as refuelling.

Amid this expansion, EVs went mainstream in China. The country is now responsible for 60% of global EV sales and 70% of EV charging volume. China’s EV charging market has seen annual growth of more than 100% over the last two years and compound annual growth is expected to hit 43% in the next eight.

Newlink grasped the opportunity, turning NaaS into an EV equivalent of the fuel station-oriented business. In addition to helping customers locate charging stations, it connects charging operators, assists in the procurement of equipment, and even designs and builds stations. The company also brings equipment manufacturers and carmakers – who can pre-install the charging app – into the value chain.

“The main difference between the refuelling and charging markets is that the former has already got very large volume and needs to be transformed, while the latter is growing at a tremendous speed and requires intermediaries so different partners can connect,” said Wu.

The NaaS network currently encompasses 90% of charging operators in China and serves 80% of domestic carmakers. As of September 2022, the network comprised 434,000 charging piles across 45,000 stations under 1,200 operators. Total charging volume was nearly 1,900 gigawatts – 20% of China’s total – and is expected to reach 2,700 GW by year-end. Gross transaction value was nearly CNY 1.8bn.

There are two main revenue drivers: commissions levied on each transaction completed by the company’s 2m users; and service fees charged to charging station operators.

“The competition in 2B service is less fierce. It's a much more fragmented market with no nationwide service provider. You need localised teams to serve of a long tail of charging station operators in lower-tier cities – that’s a capability we have and it is our focus,” said Wu.

The challenge is finding the right balance between maintaining a strong valuation and ensuring there is sufficient capital to support growth in a fast-expanding industry. Wu’s answer is capital efficiency. “If you don't grow fast enough, you will be left behind quickly,” he added. “In that context, I believe valuation is a by-product of our growth and market position.”

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