18 November 2011

Groupon and co: A year in deals

Daily deal websites have made a real impact on the dealmaking and capital markets scenes in 2011, from industry leader Groupon’s flotation on Nasdaq to M&A interest in its smaller rivals. These portals have exploded in popularity in the last few years as consumers look to make their money go as far as possible in tough economic times. They provide limited-time offers that leverage group buying power to achieve attractive discounts – and this year investors have been looking to get in on the act in a big way.

The deal-of-the-day sector burst into the headlines late last year with rumours that Yahoo! was looking to buy Groupon. Google reportedly then made a USD 6.00 billion offer for the site – when that failed, a source told the New York Post the search engine giant had turned its attentions to smaller peers. The paper named LivingSocial, Groupon’s nearest competitor, and BuyWithMe as potential targets.

Groupon subsequently went its own way with a much talked-about initial public offering (IPO) on Nasdaq, and by the time the flotation was being discussed, estimates of the enterprise’s value had skyrocketed. In April Bloomberg cited people close to the situation as saying the firm was worth between USD 10.00 billion and USD 25.00 billion. The Chicago-based company eventually raised USD 700.00 million in its public debut, which closed earlier this month.

In the meantime, reports were surfacing that other sector players were looking to go down the same route. LivingSocial, which raised USD 400.00 million in a fifth round of development funding backed by existing and new investors earlier in the year, was linked to a potential listing in June. Press reports put a price tag of USD 1.00 billion on the deal, and a valuation of between USD 10.00 billion and USD 15.00 billion on the business as a whole.

Then, in September, people familiar with the matter told Bloomberg a Chinese daily deal site was considering listing on a US exchange. Unlike LivingSocial, which has yet to announce flotation plans, Lashou.com went on to file for an IPO with the SEC with a placeholder offering price of USD 100.00 million. The company, which offers up to 1,000 deals each day across more than 500 cities, plans to use the proceeds for marketing campaigns, a call centre and research and development, among other things.

While the sector’s leading names may have made headlines over listing plans, smaller businesses have piqued dealmaking interest and the industry has seen a certain level of consolidation. In October Reuters reported kgbdeals is to buy less well-known competitor TheDealist, while earlier this month online discount retailer Gilt Groupe announced it is to purchase assets from BuyWithMe. Groupon has snapped up local competition in locations as far-flung as Latvia, India and Indonesia this year.

Private equity backers continue to invest in deal of the day businesses, and rounds of funding have vividly demonstrated how the popularity of daily deals is a truly global phenomenon: firms targeted include Australia’s CatchOfTheDay, the owner of Indian group buying site Snapdeal, Canadian portal Dealfind.com and Groupalia Compra Colectiva of Spain.

The variety of transactions and their geographical scope in 2011 seem to demonstrate an insatiable appetite for the industry, but there are already signs its popularity could be on the wane. Social networking behemoth Facebook decided not to proceed with a deal service after a trial, while Groupon has faced criticism of its business model from retailers and customers. Commentators are undecided on whether the future of the sector, and it will be interesting to see how it develops next year.

© Zephyr Ltd