Understanding the Driving Forces Behind OMO and M&A Wave

Understanding the Driving Forces Behind OMO and M&A Wave By Hongjun Zhong¹

The capital market experienced a boom at the turn of the year. There were many mergers-and-acquisitions transactions in the Chinese capital market in the past two months. Internet giants Alibaba and Tencent’s vigorous trading are drawing widespread attention. Tencent recently has taken a stake in Heilan Home (a leading enterprise in apparel industry), soon after that Alibaba has announced its RMB 5.45 billion ($866 million) strategic investment in leading home furnishing operator, Beijing Easyhome Furnishing Chain Store Group Co Ltd. Furthermore, Tencent Holdings, partnering with domestic supermarket operator Yonghui Superstores in which Tencent has bought a stake, strategically invested in Carrefour China. This act delivers a clear signal to market that the Internet giants intend to extend their online competitive advantages to offline markets through investments in traditional retailers. A key feature of recent investment boom is that it is not occurred within industry but across industry, and mixed vertical integration with both on- and offline, rather than the division of industries.

This trend of online giant’s merging or investing in offline corporates does not restrict to China. It also occurs in U.S. The most well-known M&A case in 2017 is the online retail giant Amazon bought the high-end grocery Whole Foods for $13.7 billion in cash. This is the largest acquisition deal ever