Chinese mobile logistics app 58 Suyun, operated by New York-listed online classifieds site 58.com’s online-to-offline life services spinoff 58 Home, has merged with intra-city logistics platform GoGoVan, the two announced on Monday.
The transaction creates Asia’s largest online platform in the intra-city logistics and freight business, according to the announcement. It also values the merged company – which will be branded as 58 Suyun in the mainland market and GoGoVan offshore including Hong Kong – at more than $1 billion, making it the first unicorn in Hong Kong, according to executives.
“If this [merged] company is valued at $1 billion only, for some of the existing investors, it would be loss making on paper,” Chen Xiaohua, 58 Home’s CEO who will serve as the chairman of the merged company, told FinanceAsia in an interview in Hong Kong on Tuesday.
In May last year, GoGoVan, which was backed by Cyberport Hong Kong in the seed round, was among the first batch of start-ups to get funding from the $130 million Alibaba Entrepreneurs Fund, a not-for-profit initiative in Hong Kong launched by Chinese e-commerce giant Alibaba Group. Chinese private equity firm New Horizon Capital was the lead investor in the Series C round in May last year, for undisclosed terms. Total equity funding for GoGoVan exceeds $26 million, according to Crunchbase data. GoGoVan’s CEO Steve Lam will serve as CEO of the new company.
Analysts recognise that 58 Home had achieved unicorn status in its own right before the merger as it received $300 million in Series A funding from Alibaba, Ping An Insurance and private equity firm KKR in October 2015. The terms of the financing were not disclosed, but referencing to a standard range of 15%-20% stakes for Series A fundraising, it would value 58 Home at as least $1.5 billion post-money.
However, as 58 Home also operates in business segments such as on-demand housekeeping, it is not clear how much the 58 Suyun segment is valued at.
According to a person familiar with the situation, the merged company is already in talks with investors for a new round of fundraising, targeting at least $100 million. After the completion of the new round, the valuation of the merged company will be clearer, said the person, adding that investors know the pre-money valuation is at least $1 billion.
"Our investors all view that this company is capable of an IPO within the next one to two years,” said Chen, adding it doesn’t necessarily have to go for a flotation that soon if the business grows much bigger than expected.
Lam told FinanceAsia the firm was now working to expand to more cities in the Southeast Asia market. Besides Hong Kong and eight mainland cities, GoGoVan already operates in Taiwan, Singapore, South Korea and India. It also has a large number of enterprise clients, extending business line to the B2B market.
The merger marks a rare case in China’s start-up world where two companies that are not in direct competition join forces in a merger. Most mergers in the O2O (online to offline) space in the past few years have been motivated largely by a wish to end costly subsidy wars amid investor pressures.
“A lot of the mergers in the past [were because] they didn’t have a choice,” said Jeremy Choy, head of M&A at China Renaissance, which acted as the exclusive financial advisor to both 58 Home and GoGoVan. In this case, “neither party had to do the merger in theory as they are already industry leaders in their respective markets,” Choy said. But he is not sure whether this will grow into a trend: “There may not be that many cases where two companies are not fighting with each other and have clear complimentary advantages."
Chen told FinanceAsia another major driver for the deal is that by leaving the operations of the logistics and freight business to the GoGoVan team, 58 Home can better grow other business segments.
58 Suyun covers more than 100 Chinese cities, has 1 million drivers registered on its platform, and has a user base of more than 3 million. GoGoVan has more than 180,000 registered drivers and nearly 30 million orders cumulatively.