One of China’s largest e-commerce startups has agreed to take over a rival to form a company reportedly valued at $2.5 billion.
Mogujie, which has a focus on fashion, will merge with Tencent-backed competitor Meilishuo, which has been called “China’s Pinterest” for its focus on female users and skincare and fashion products. Mogujie was already one of more than 100 companies on Fortune’s Unicorn List, a list of privately-held companies valued at more than $1 billion.
The new, combined company “plans to raise fresh funds” that could increase its valuation, according to Mogujie CEO Chen Qi in a memo to employees. Qi would remain CEO of the new entity. The Wall Street Journal reports that Tencent may increase its stake in the new company.
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The deal isn’t the first among Chinese unicorns. China’s two largest taxi-hailing firms, Didi Dache and Kuaidi Dache, merged in February 2015 to create Didi Kuaidi.
Investors are watching such deals closely for signs of the market’s trajectory. Until recently startups were raising venture capital at an alarming pace; recent downward market forces have slowed the pace of all but the most highly valued companies, putting pressure on the companies to put up (and show that revenue can follow user growth) or shut up (by exiting before matters become worse).
Chen wrote in the letter that the deal values Mogujie twice as much as Meilishuo. (According to the latest estimates, Hangzhou-based Mogujie was worth $1.7 billion.) The companies last year generated combined revenue of nearly 20 billion yuan , or $3 billion, he added.