NASDAQ-listed deals & vouchers site Groupon Inc has become yet another multi-national firm to cut an unusual deal in India, diluting stake to a private investment firm for the local arm. It is learnt to have raised $20 million from venture capital firm Sequoia Capital for its Indian arm Groupon.co.in, sources familiar with the development told VCCircle.
The deal was closed last week, one of the source said.
"It has also signed an agreement with Sequoia to raise more money in two subsequent rounds—one in December this year and next by March 2016," the source said.
An email sent to Groupon's spokesperson did not elicit any response till the time of filing this article while Sequoia Capital's spokesperson declined to comment on the deal.
A Techcrunch report early in the day reporting the same development said Groupon has declined to comment on it.
Founded by Andrew Mason in 2008, Groupon created a niche as a group buying site. It entered a crowded market in India through the acquisition of SoSasta, which was rebranded as Crazeal (at that time the firm was in litigation with another owner of the Groupon India domain) and then rebranded again as Groupon, all within a couple of years.
It is pretty unusual for MNCs to dilute stake in local subsidiaries unless forced by the law (as in some countries) to do so as they like to maintain full control of the business and do not require external cash for small units. For the private equity or venture capital investors it doesn't make sense to do such deals as there is limited exit options other than a buyback by the MNC parent.
However, there have been exceptions such as cement giant Lafarge which sold a small stake to Baring PE Asia in what was seen as a special situations deal. Lafarge is merging with Holcim which would give Baring an exit soon with a neat profit.
In the case of Groupon, Sequoia, which is one of the most active VC firms in the country, could be looking at an additional exit option where it swaps stake in Indian unit with that of the US-listed parent in the future.
Moreover, Groupon has already stated it is looking at alternative funding options for a few business units.
“We have hired advisers to help us explore a range of financing and strategic alternatives for Ticket Monster and certain other Asian markets. As part of that process, multiple parties have expressed preliminary interest in Ticket Monster. However, we cannot provide any assurance as to the pricing, timetable or structure of any transaction or the likelihood of any transaction being completed,” it said in its last earnings report.
It had acquired LivingSocial Korea Inc in January 2014, holding company of Ticket Monster Inc, for $259.4 million. Ticket Monster, which has approximately 1,000 employees, is an e-commerce company based in South Korea that connects merchants to consumers by offering goods and services at a discount.
Groupon is one of the key firms in the largely fragmented market for online vouchers and discount coupons. Others in the space include MyDala, Rocket Internet's CupoNation, CouponDunia, Times Internet owned CouponDunia and Smile Group's DealsandYou, among several others. Once a hot space, it had fallen of investors’ radar, barring an odd deal here and there. To that extent Sequoia's investment in Groupon India seems like a contrarian bet.
(Edited by Joby Puthuparampil Johnson)