Chinese social media firm NewBorn Town is planning to set up a $100 million fund with an aim to privatise Nasdaq-listed BlueCity Holdings — the operator of Blued, the country’s biggest LGBTQ dating app. The move will also help to up NewBorn Town’s stake in the global social networking and mobile gaming market.
Hong Kong-listed NewBorn Town will launch the fund along with its largest shareholder Spriver Tech Limited, and a wholly-owned subsidiary of Spriver, the firm announced in a regulatory filing on Thursday. Spriver is wholly owned by Liu Chunhe, NewBorn Town’s founder, CEO, and chairman.
NewBorn Town said that its board has approved the plan for the launch of the fund. The three parties are expected to seal the deal before March 31.
Under the agreement, NewBorn Town will make a cash contribution of $50 million to the fund, while Spriver plans to pour $49.9 million in cash. Spriver’s subsidiary will invest the remaining $100,000 to serve as the general partner (GP) to manage the fund.
BlueCity’s founder, chairman, and CEO Baoli Ma currently holds a 30.4% stake in the firm, which means that the buyer group will need to purchase the remaining 69.6% stake, or about 25.9 million ADSs, for almost $48 million in total.
BlueCity has formed an independent special committee to evaluate and consider the going-private proposal.
Privatising Nasdaq-listed BlueCity could end the firm’s journey of around 18 months on the Nasdaq. The firm started trading on Nasdaq after a $85 million IPO in July 2020.
Beijing-based Blued, which serves over 60 million registered users in about 170 countries and regions, offers social networking, livestreaming, and health-related services to the LGBTQ community.
NewBorn Town is offering to privatise BlueCity at a time when the authorities are tightening scrutiny of initial public offerings (IPOs) by Chinese firms in US public markets. Since the fallout over Chinese ride-hailing giant Didi’s US IPO last June, only three China-based companies went public in the US between July and December 2021, compared with 34 in the first half of the year, according to Renaissance Capital.
BlueCity could face increasing regulatory uncertainties if it chooses to remain listed in the US. The China Securities Regulatory Commission (CSRC) in late December released proposed rules for domestic companies seeking an overseas IPO. The draft indicates that Chinese firms will need to comply with relevant provisions in areas including foreign investment, national security, data security, and cybersecurity, under which businesses that hold data of over one million users are targeted.
The attempt to take BlueCity private was first made public on January 3, when BlueCity announced to have received an offer from Spriver and BlueCity’s founder, chairman, and CEO Baoli Ma to privatise the business at a proposed purchase price of $3.7 per ordinary share, or $1.85 per American depositary shares (ADS) in cash.
Industry investment strategy
For NewBorn Town, the $100-million fund also marks its strategy in accelerating business expansion by investing in smaller industry players globally — a move that follows the footprint of internet giants including Tencent, which is famed for its gigantic overseas portfolio.
According to the stock exchange filing, the fund will help NewBorn Town “expand its reach” in the global market with a focus on the TMT sector, including potential investments in Metaverse, social networking, gaming, avatar creation, copyrights of music content, augmented reality (AR), and virtual reality (VR), among others.
NewBorn Town, which was created by Liu at his university lab in 2009 and went public in Hong Kong by the end of 2019, has grown a product portfolio spanning social networking, livestreaming, and mobile gaming. Its products and services are available across regions such as North America, Europe, Middle East, Southeast Asia, and South Asia.
NewBorn Town “has increased its localised operations in many overseas markets,” said Liu in its 2021 interim financial report. The firm is “actively developing games and other diversified businesses to open up more dimensional growth space.”
It booked total revenue of over 1 billion yuan ($157.5 million) in the first half of 2021, with a whopping year-over-year (YoY) growth rate of 590.8%. Its profit for the period stood at 140 million yuan ($22 million), shows the firm’s latest financial results.