Group-buying companies merge

Updated: 2012-08-02 10:28

By Lin Jing (China Daily)

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GaoPeng, the Chicago-based Groupon Inc's China joint venture, has merged with Chinese group-buying website Ftuan to form a new company called GroupNet.

Details of the deal have not been disclosed. Lin Ning, CEO of Ftuan, now CEO of GroupNet, said that the integration of business, organizational structure and operation systems will be completed by the third quarter.

"We believe that China's group-buying market will see another round of shuffle, and market share will be held by a few market leaders soon," Lin said.

According to Dataotuan, a third-party industry monitor, in April, the top 10 group- buying websites took 81.7 percent of market shares. Ftuan had 4.7 percent and GaoPeng 1.9 percent. ranked highest with 17.7 percent.

Lin said Ftuan has advantages in service deals such as restaurant coupons and movie tickets and GaoPeng is better in product deals and global resources.

"By this transaction, we plan to build an O2O (online to offline) website with multiple platforms and expand our business scale and market share rapidly," Lin said.

In 2011, the total transaction volume of the group-buying industry reached 23.7 billion yuan ($3.7 billion), and about 1 million offline merchants participated in group-buying business, according to data from Analysys International, a Beijing-based consultancy.

Lin said that at present the total combined monthly sales of Ftuan and GaoPeng are between 150 million yuan and 200 million yuan. He expects the figure to be 300 million yuan to 400 million yuan by the end of the year.

Chen Shousong, chief analyst with Analysys International, said the merger was very likely pushed by Tencent Holdings, China's biggest Internet company by revenue. Tencent has invested in both websites.

"Tencent can reduce its operation and marketing costs, and lower its management risks by combining two companies together. Meanwhile, advertisements can be concentrated more on one platform," Chen said.

Tencent could not be reached for comment.

After the deal, Ftuan and GaoPeng will remain separate brands and serve different market segments. Ftuan will mainly provide deals priced at 80 yuan to 100 yuan, aimed at white-collar workers, while GaoPeng will target high-end users, offering services and products from local merchants from about 150 yuan.

Chen said both companies will benefit from the deal as their resources complement each other.

"As a local website, Ftuan has strength in frontline marketing and local sales networks, while GaoPeng, just like its American counterpart, is ahead of others in technology and product innovation," Chen said.

But he said the merger will not influence the current market pattern.

After the merger, Tencent will become the largest shareholder of GroupNet. The new company will contribute 60 percent of deals to QQ TuanGou, the group- buying portal run by Tencent.

Lin said GroupNet will have more cooperation with Tencent in several business lines.

"As a major provider for QQ TuanGou, GroupNet will have various forms of support from Tencent, including online traffic, management and resources," he said.

Lin said GroupNet still has sufficient funding and no plans for an IPO yet.

In the past year, the group-buying industry has been reshuffled and thousands of companies have closed because of low profits.

The latest report from group-buying portal Tuan800 says that by June there were 2,976 group-buying websites left, down by 38.9 percent compared with the same period last year.

The report predicts that there will be one or two group-buying companies with monthly sales over 300 million yuan to 500 million yuan. And the top three to five companies will take 80 percent of market share.

Hu Chen, co-founder of Tuan800, said that more mergers and acquisitions will be seen soon among the top 10 companies.

"Before September, more websites will be looking for cooperation, due to low profit margins. But since many of them have similar resources but different sales systems and company cultures, whether their cooperation will generate a higher business value still remains in question."

He said group-buying companies should take a different route, such as joint operations or sharing frontline marketing, which is much easier and less costly than M&A.

(China Daily 08/02/2012 page13)