Alibaba Group Holding Limited announces an agreement to acquire a controlling stake in Lazada, a leading e-commerce platform in Southeast Asia. Under the April 2016 deal that is worth approximately $1 billion, Alibaba will buy around $500 million worth of newly issued shares in Lazada, as well as acquiring shares from some existing shareholders.
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.
"Globalization 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."
As Evans stated, the investment will support Alibaba's expansion plans in Southeast Asia.
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."
The Stepping Stone For Alibaba
Founded in 2011, Lazada Group is a privately owned e-commerce company headquartered in Singapore, founded by a German internet company Rocket Internet. Lazada sites were launched in March 2012.
Lazada quickly became the one-stop e-commerce solution for many online shoppers in six countries. By the end of 2014, the marketplace accounted for 65 percent of its total sales.
It currently operates in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. With about 560 million people in those six countries, only 3 percent of the population are conducting purchases online. Lazada here has a huge pie of that market.
With a business model of selling inventory to customers from its own warehouses (pictured below), it also has a marketplace model that allowed third-party sellers to sell their products through Lazada's sites.
The company's unique solution to approach consumers is its effort in combining local presence with the ability to provide supply-chain, last-mile delivery and payment.
Lazada had raised approximately $647 million over several investment rounds from its investors such as Tesco, Temasek Holdings, Summit Partners, JPMorgan Chase, Investment AB Kinnevik and Rocket Internet.
Being acquired by Alibaba, Rocket Internet as Lazada's founder will sell 9.1 percent of the stake for $137 million in cash while keeping its remaining 8.8 percent stake. British supermarket giant Tesco will sell 8.6 percent equity stake in Lazada for $129 million, while keeping its remaining 8.3 percent stake.
Both Rocket Internet and Tesco said they have entered into a "put-call arrangement" with Alibaba, giving the buyer the right to purchase, and shareholders the right to sell their remaining stakes at a "fair market value" within the 12 to 18 month period after the closing of the deal.
Alibaba saw the opportunity to expand its e-commerce business in the Southeast Asia, expecting the tremendous potential those nations have as internet penetration continues to rise. This will also makes Alibaba able to tap into Lazada's logistics backbone.
The deal marks Alibaba's largest overseas acquisition to date. This comes as Alibaba has been using its $3.7 billion in free cash flow to expand into e-commerce, logistics and media, as well as entertainment on both at its home country and abroad.
Alibaba's founder and Chairman Jack Ma has set a goal of getting at least half Alibaba's revenue from overseas, with the Lazada deal adding sales of clothing and electronics in the six Southeast Asian markets.
While Alibaba has come to dominate e-commerce in China, it remains dependent on its Chinese users for the vast majority of its business until this time. The deal represents a departure for Alibaba, especially when it sees a slowing growth in its home country.