Tencent-backed freight start-up G7 merges with Alibaba's E6

The merger comes as Tencent-backed G7 considers a potential IPO in Hong Kong. PHOTO: REUTERS

HONG KONG (BLOOMBERG) - G7 Connect, a fleet management company backed by Tencent Holdings, has agreed to merge with smaller competitor E6, which counts a unit of Alibaba Group Holding as an investor, bringing the two Chinese platform giants together as shareholders in the combined firm.

Both G7 and E6 will retain their own brands and independent operations while they seek synergies in areas where they overlap, according to a press release seen by Bloomberg News. The merger comes as G7 considers a potential initial public offering (IPO) in Hong Kong that could happen as early as this year.

The company is working with advisers including China International Capital, Citigroup and Morgan Stanley on the proposed first-time share sale.

"We decided to finish the merger before the IPO, because we have faith we can really change this industry," said Mr Zhang Jielong, chief financial officer of G7, in an interview.

"We are ready to launch any time once the market condition improves," Mr Zhang added.

The merged company will formally take on G7's name, and its combined investors, GLP, Tencent and Alibaba-backed Cainiao Smart Logistics Network, will each have roughly a 7 per cent to 10 per cent interest in the firm, Mr Zhang said, with any discrepancy between the sizes of Tencent's and Cainiao's stakes within just half a percentage point.

Tencent and Alibaba have largely built rigidly separate ecosystems, with few exceptions. Video platform Bilibili is backed by both giants. G7 had a valuation of US$2.2 billion (S$3 billion) prior to the merger, while E6's revenue is roughly 70 per cent of G7's, according to Mr Zhang.

A valuation for the combined company was not disclosed. Both G7 and E6 use artificial intelligence and Internet of Things technology to manage freight and logistics services, with sensors and cameras capturing data to optimise efficiency. They use advanced driver-assistance systems to detect and warn about bad driving or insufficient space between vehicles, and weigh cargo loads in real time to prevent theft.

E6 serves more than 40,000 logistics companies in sectors such as cold chain storage and transport, according to an internal document seen by Bloomberg News. It was founded in 2006 in Shenzhen, and connects more than two million trucks and 2.3 million drivers.

Started in 2010, G7 takes its name from the G7 Beijing-Urumqi Expressway, the world's longest desert highway.

In February, it raised US$200 million in a funding round led by Trustbridge Partners and CS Capital, according to a press release at the time. In recent years, G7 has ventured into transaction services in areas such as settlement, insurance and equipment, which now account for more than 70 per cent of the firm's revenue, Mr Zhang said.

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