Key Takeaways

• Dingdong's decision to sell its domestic operations to Meituan highlights the brutal reality of China's instant commerce price wars
• India's rejection of a Chinese private equity investment in an Italian firm signals a new era of global protectionism over advanced technology

Image Credit: Bamboo Works

The global M&A landscape is shifting rapidly, shaped by harsh new realities on both domestic and international fronts. Two recent major developments perfectly encapsulate these modern challenges. In one case, a major acquisition in China's internet sector highlights the brutal wars taking place as companies try to gain scale in an underperforming post-Covid economy. In the other, a collapsed cross-border deal with an Indian element underscores how geopolitical tensions are increasingly erecting roadblocks for global investments. Both events reflect a broader theme: companies are being forced to navigate an increasingly complex competitive environment.

In the domestic arena, we look at one of the bigger M&A deals on the Chinese internet in quite a while. Dingdong (NYSE:DDL), an early pioneer in online-to-offline (O2O) services, specifically online groceries, is being swallowed by food delivery giant Meituan (OTC:MPNGY) (OTC:MPNGF) (3690.HK) in a $717 million deal.

Lately, Dingdong was being overwhelmed by larger internet companies encroaching on its space, most notably Alibaba (NYSE:BABA) (9988.HK), JD.com (NASDAQ:JD) (9618.HK), Meituan, and Pinduoduo (NASDAQ:PDD). We believe this deal was primarily driven by market share considerations. The Chinese economy hasn't performed as strongly as expected post-Covid, with consumers becoming significantly more concerned about the cost of both discretionary items and necessities, spending less than anticipated.

In this kind of business, it's all about scale. To grow market share, companies offer incentives and cut prices, prompting their rivals to jump in and do exactly the same. We've seen similar price wars in other sectors, such as electric vehicles and solar panels. However, while EV and solar manufacturers can export their goods overseas to find growth, O2O e-commerce relies on fresh food and prepared meals. Replicating this at scale overseas takes time, making it easier for these giants to compete aggressively at home first.

What's particularly surprising about this deal is that it happened at all. Chinese entrepreneurs are famous for not wanting to sell their companies even when the odds are highly against them, often staying in the game until their businesses fail and shareholders are left with worthless shares. We think Dingdong's founder, Liang Changlin, deserves tremendous credit for recognizing the inevitable. He chose to sell the China business while it still held value.

Dingdong will remain a publicly traded company, retaining its global market businesses and roughly $1.2 billion in cash. While there's speculation about expanding grocery deliveries in other markets, we remain cautious. Meituan is already pushing into the Middle East and Latin America, meaning Dingdong might just be transferring its domestic competition to foreign markets. For investors, the proof will be in the pudding — it is a waiting game to see what the new Dingdong does next.

Geopolitics kills a cross-border deal in India

Shifting to the international stage, we examine one of the first cross-border M&A deals killed by India over apparent concerns regarding the buyer's China ties. EuroGroup Laminations, an Italian firm, was looking to sell a 45% stake to FountainVest, a Chinese-owned private equity firm based in Hong Kong.

The deal required India's approval because EuroGroup owns 40% of Kumar Precision Stampings, which it bought in 2024. Even though the two sides offered to carve out the Indian operations to satisfy regulators, India effectively killed the deal without giving a specific reason.

We believe this has all the markings of geopolitics. Relations between China and India have been strained in recent years. Kumar Precision Stampings is involved in advanced technology, which has become a substantial economic and strategic priority for India, just as it is for China and the U.S. By rejecting the carve-out offer, the Indian government likely wanted to protect not just Kumar, but its ongoing access to high-quality Western technology. Carving the unit out would have left Kumar on its own, potentially unable to move forward with the never-ending upgrades required in high tech.

FountainVest likely pursued this minority interest for either financial gain or strategic considerations on the part of China — either of which would be enough reason for India to block the transaction.

In the past, vetoes of M&A deals on national security grounds were rare, largely because massive deals occurred between friendly Western nations. Today, we believe we will definitely see more of these vetoes. Every major country — including the U.S., India, China, and a newly awakened Europe — has become extremely protective of its know-how and national champions. The world is becoming much more competitive geopolitically, and cross-border M&A deals will increasingly find themselves caught in the crossfire.

From China Inc by Bamboo Works – which discusses the latest developments on Chinese companies listed in Hong Kong and the United States to drive informed decision-making for investors and others interested in this dynamic group of companies.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.