A Hong Kong-based investor with close ties to Chinese group buy site 55Tuan has said that the company was rejected by a number of banks, including Credit Suisse, Goldman Sachs, Merrill Lynch and Deutsche Bank, in the past two months during its search for an IPO underwriter. The investor said that while the rejections were for a number of reasons, the biggest question centered on the maturity of 55Tuan's development model, which relies on the acquisition and integration of numerous small-scale group buy sites. Additional problems are a lack of strong management or a robust profit model, adding to investor risk, according to the investor, who added that aside from these issues, Chinese concept stocks have also cooled down significantly recently, increasing the risk for underwriters of Chinese companies listing overseas to sustain heavy losses.
In response to previous estimates by 55Tuan that it has raised up to USD 200 mln, the investor said that "you only need to do some basic math on who its investors are to reach the same conclusion. Of the investors disclosed by 55Tuan, CDH Investments, Sky Blessing Investment, Zero2IPO Ventures, Redbud Capital and Shanghai GSI Investment, the only high-profile investors are CDH and Zero2IPO, but Zero2IPO is primarily in the investment consulting business and funding amounts issued by its subsidiary investment arm are known to be quite small. Its investment in 55Tuan, in other words, would only have been within USD 1 mln," said the investor. "CDH did make an investment of USD 20 mln before its co-founder Wang Gongquan left the company, following which no one carried on with this particular portfolio. The nature of the other investors isn't clear, but there's clearly no way that they would have invested USD 200 mln in 55Tuan."
A spokesperson for 55Tuan responded to these rumors by pointing out that under U.S. law, all negotiations between a company and its underwriter are prohibited from being made public. The spokesperson said that 55Tuan has been active recently in talks with brokers, and plans to hold a press conference to answer questions when it eventually decides to meet with interested investors. In addition, 55Tuan CEO Xu Maodong recently revealed through his microblog account that 55Tuan currently has more than RMB 9 mln in daily revenue. Xu said that the company now has upwards of 5,500 staff providing service to users in more than 150 cities across the country.
Editor's Note: For more information on this topic, please see "55Tuan Obtains USD 200 Mln in Funding, Plans US IPO," MD 5/25/11 issue.
Keywords: business model HR Deutsche Bank Internet IPO funding investment revenue CDH Investments Credit Suisse Goldman Sachs Merrill Lynch Zero2IPO Xu Maodong 55Tuan Wang Gongquan Redbud e-commerce group buying M&A