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China's Meituan is said in talks to raise up to US$5b

[HONG KONG] Meituan Dianping, China's largest group-buying and restaurant review service, is in talks to raise US$3 billion to US$5 billion, people with direct knowledge of the matter said.

The funding round is likely to value the company at US$25 billion to US$30 billion, the people said, asking not to be identified as the discussions are private. Tencent Holdings Ltd, already a backer, plans to participate in this round, the people said.

Meituan is building its war chest as it tries to secure dominant status in China for what are known as online-to-offline, or O2O, services in competition with rivals backed by Alibaba Group Holding Ltd. Revenue from the sector, providing services from food delivery and movie ticket bookings to massages, are expected to reach US$230 billion in 2018, according to internet consultant IResearch.

Meituan said in January 2016 that it had raised US$3.3 billion at a valuation of US$18 billion. The company was formed in 2015 through the merger of and and created a dominant player in China's emerging market for local internet services, such as buying groceries or movie tickets via smartphone apps.

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The fundraising highlights the land-grab mentality where wars are often won by raising and investing money quickly to gain the most customers first. Sufficient funding would help Meituan assemble ammunition to battle out Koubei and - two competitors backed by Alibaba.

Meituan has a complicated history with Alibaba. Once a close ally and portfolio company, It riled the e-commerce giant by merging with Dianping, which is backed by Tencent. That soured relations and Alibaba eventually sold the majority of its shares in Meituan. The two are now at war.

Alibaba and Tencent, the nation's two largest internet giants are using food delivery and neighborhood services as proxies for a battle in their mobile payments business. The deep-pocketed giants, which both have market values of at least US$370 billion, have splurged billions on the sector, as more people turn to smartphones to order takeout and hire cleaners.

The costly war is causing smaller competitors to retreat from the market. Baidu Inc's food delivery service Waimai is said to be selling to an entity backed by Alibaba at a discount, a person familiar with the matter has said.

Meituan said in May that it had more than US$3 billion in cash reserves, and that the company completes more than 18 million orders a day, with more than 240 million active annual buyers.

Jane Zuo, a spokeswoman for Meituan, declined to comment. Jane Yip, a spokeswoman for Tencent, said she couldn't immediately comment.