Dating Site Zhenai Spurns Offshore Listing for Chinese Suitor

(Beijing) — Online dating site Zhenai.com is being acquired by a Shenzhen-listed drone maker, the latest example of an alternate exit strategy for venture-backed companies whose former first choice would have been a New York initial public offering (IPO).

As part of its deal to be acquired by DEA General Aviation Holding Co., Zhenai will shed its variable interest entity (VIE) status, a corporate structure typically used by Chinese companies looking to list overseas to comply with Chinese laws on foreign ownership of domestic companies, DEA said in a statement on Wednesday to the Shenzhen Stock Exchange.

Venture-backed Chinese companies have recently used similar purchases by Shanghai- and Shenzhen-listed shell companies as a form of backdoor IPO to avoid long waits for traditional offerings. But the securities regulator has recently cracked down on such listings, aiming to curb a process that isn’t highly regulated and doesn’t subject companies to the same scrutiny as traditional IPOs.

A DEA executive told Caixin the Zhenai acquisition did not constitute a backdoor listing, and that DEA’s core aviation business would not change after the merger, nor would its management. Zhenai posted a profit of about 100 million yuan ($14.6 million) in 2016, excluding extraordinary items, on revenue of about 1 billion yuan, according to the statement.

DEA said it would issue new shares to fund its purchase of 100% of Zhenai, and could also raise additional funds as part of the process. It said a specific plan is still being crafted, and final details have yet to be determined.

“It could be a genuine M&A deal in a business diversification strategy as opposed to a backdoor listing,” said Rene Vanguestaine, CEO of Christensen Investor Relations, which provides services for U.S.-listed Chinese firms. “Over the past few years, we have seen a number of Chinese companies … acquire unrelated businesses to diversify away from declining or mature businesses in an effort to capture the next growth waves.”

The Zhenai purchase wouldn’t mark the first time DEA has tried to transform itself. The company was originally a maker of electronic devices, but morphed into its current form through a series of domestic and foreign purchases in the aviation business between 2013 and 2015, mostly in the helicopter industry.

Zhenai also isn’t the first matchmaking site to abandon an offshore listing path. Rival site Jiayuan delisted from the Nasdaq Stock Market last year in a deal that saw it privatize and merge with rival Baihe. Many similar venture-funded Chinese companies have chosen a similar path over the last two years, as they can often get much higher valuations from local investors than they could in New York.

Contact writer: Yang Ge (geyang@caixin.com)