Meituan.com, part-owned by Alibaba Group Holding Ltd, and Dianping.com, backed by Tencent Holdings Ltd, will look to tie-up their companies in a deal that would create a $20 billion behemoth in the handheld local services app industry.
People close to the discussions say the agreement should be tied up by the end of the week. The sources preferred to remain anonymous due to the sensitive nature of ongoing talks. Its thought Meituan’s shareholders will have a majority stake in the new entity with 55 percent, the sources claim.
It’s generally accepted that the use of smart phones and tablets to book everything from take-away food to taxi rides will become mainstream in the not-too-distant future, and China’s biggest internet firms are investing heavily in the industry, which is thought to be worth nearly $2 trillion annually already. According to IResearch, an internet consultancy institute, there is more than likely to be a 30 percent increase in users of location based services within the next two years.
The market leader in the industry currently is Baidu Inc, originally a search engine company, who runs its local services app Nuomi after an investment of over $3 billion in development. Meituan-Dianping would hope to compete at a similar kind of level.
Wang Weidong, a senior analyst at IResearch, said a combination of the two firms would mean “decreased cash burn and an opportunity for them to establish a level of dominance over competitors in the local services market”. This sentiment was supported by a similar report from investment firm CITIC Tokyo International who are specialists in group-buying companies.
Group-buying allows consumers to get heavy discounts on goods and services on the condition a minimum number of buyers would make the purchase, and many online services have sprung up in China catering to the niche market, most notably Groupon Inc. which currently dominates market share grabbing over half of all Chinese group-buying transactions in the first half of 2015.
