Alibaba Group Holding Ltd is expected to buy about $500 million in newly issued equity capital of Lazada Group and purchase an equal amount of shares from existing investors. Lazada is currently valued at $1.5 billion, according to Rocket Internet.
Lazada operates in six Southeast Asian countries – Malaysia, Philippines, Singapore, Thailand, Vietnam and Indonesia, the largest Southeast Asian economy with 256 million people. The investors from which Alibaba will reportedly buy shares include Britain's largest supermarket operator Tesco Plc, Rocket, and Swedish investment company Kinnevik.
"Southeast Asia has a lot of overlap with China in terms of consumer habits, intra-regional trade and tastes. Rocket in this case has managed to create a successful, multi-market player in a region which needs scale and breadth to be viable. This has obvious appeal to Alibaba," says Duncan Clark, chairman of investment advisory firm BDA China and author of a book on Alibaba.
In the first nine months of 2015 alone, Lazada has reported an 81 percent increase in revenue amounting to $190 million. Its active online subscribers more than tripled to 7.3 million. However, despite the company's strong and steady sales growth, Lazada still has to make up for its high net operating losses.
"We are very excited about joining forces with Alibaba and see significant synergies that will drive great benefits to our customers in Southeast Asia," says Max Bittner, CEO of Lazada Group. "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."
Alibaba's Chairman Jack Ma has expressed equal excitement about the deal. Ma has been very vocal about his vision of expanding Alibaba's consumer reach and acquiring more than half of the company's revenue overseas. Lazada's market captures approximately 560 million people and has an estimated online user base of 200 million.
"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 eCommerce globally," said Michael Evans, President of Alibaba.
Alibaba has suffered recently and this is due to both the economic slowdown in China and the government's crackdown on counterfeit and low quality goods being sold online and in stores. This has resulted in lower than expected annual sales and revenue for Alibaba, its slowest annual rate in more than three years. The Lazada acquisition marks Alibaba's attempt to turn its business around and capture a larger share of the global manufacturing marketplace.
