Chinese e-commerce giant Alibaba Group today announced a headline-grabbing US$1 billion deal to buy a controlling stake in Southeast Asian platform Lazada, deepening its coverage of Asia and setting up major potential logistics synergies in the region.
The transaction is expected to help brands and distributors around the world that already do business on Alibaba’s platform, as well as local merchants, to access the Southeast Asian consumer market, according to the company. Loss-making Lazada claims to have sold goods worth US$1.36 billion on an annualised basis as of March 2016.
The deal follows other strategic international expansion moves by Alibaba in recent months as it aims to gradually increase non-China revenues from just 6% (in Q4, 2015) towards a target of 50% in the long term. These included its minority stake in Singapore Post, a US$500 million joint investment with hi-tech manufacturer Foxconn and Japan’s Softbank in Indian e-commerce group Snapdeal and the takeover of the Hong Kong newspaper South China Morning Post.
Under the deal announced today, Alibaba will acquire a controlling stake in Lazada by investing US$500 million in newly issued equity capital of Lazada and by acquiring shares from certain shareholders of Lazada, for a total investment of approximately US$1 billion. The Chinese group also has the right to buy the remaining shares from certain shareholders over the next 12-18 months.
Among the Lazada shareholders selling shares to Alibaba are founders Rocket Internet, a German-based high tech incubator and British supermarket group Tesco. Rocket sold a 9.1% stake for US$137 million and said the overall deal values Lazada at $1.5 billion, implying that Alibaba will own 66% of the company in future. Singapore state investment fund Temasek Holdings is another investor in the company.
Founded in 2012, Lazada currently operates e-commerce platforms in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, which have a combined population of approximately 560 million and an estimated Internet user base of 200 million, according to Internet Live Stats. With only 3% of the region’s total retail sales conducted online, Southeast Asia is expected to offer tremendous growth potential to both companies as internet penetration continues to rise.
The Singapore-based e-retailer, which claims to have more than five million daily visits to its marketplaces, is positioned as a one-stop e-commerce gateway for local and international brands and distributors to consumers in these six countries. By combining its regional presence with locally tailored capabilities in areas such as supply-chain, last-mile delivery and payment, Lazada has developed a unique solution for global brands and distributors wanting to enter this rapidly growing region.
Lazada operates its own logistics and delivery networks, claiming to ship 85% of goods sold through its marketplaces within 48 hours. One clear area of potential cooperation will be with Cainiao, Alibaba Group’s affiliated logistics network in China, and with Singapore Post, which is creating a Southeast Asian e-commerce logistics operation in cooperation with minority shareholder Alibaba Group.
“Globalisation is a critical strategy for the growth of Alibaba Group today and well into the future,” said Michael Evans, President of Alibaba. “With the investment in Lazada, Alibaba gains access to a platform with a large and growing consumer base outside China, a proven management team and a solid foundation for future growth in one of the most promising regions for e-commerce globally. This investment is consistent with our strategy of connecting brands, distributors and consumers wherever they are and support our ecosystem expansion in Southeast Asia to better serve our customers.”
Max Bittner, CEO of Lazada Group, added: “We are very excited about joining forces with Alibaba and see significant synergies that will drive great benefits to our customers in Southeast Asia. Southeast Asia is an attractive mobile-driven consumer market that is highly fragmented and diverse with significant barriers to entry and a nascent modern retail sector that has large headroom for growth.
“The transaction will help us to accelerate our goal to provide the 560 million consumers in the region access to the broadest and most unique assortment of products. Furthermore, leveraging Alibaba’s unique knowhow and technology will allow us to rapidly improve our services and provide an even more effortless shopping and selling experience.”
