PE groups buy $1.6bn in Alibaba shares

Silver Lake, DST, Temasek and Yunfeng Capital have provided the capital for a 'liquidity programme', allowing employees in China's largest e-commerce company to cash out some shares.

An international group of private equity and institutional investors comprising Menlo Park-headquartered Silver Lake Partners, Russia’s DST Global, Singapore’s Temasek Holdings and China’s Yunfeng Capital will become stakeholders in Chinese e-commerce company Alibaba Group.

A source close to the deal said it was valued at around $1.6 billion.

Financial details and shareholding structure were not disclosed in an accompanying statement and the parties involved declined to go into specific details. 

Alibaba chairman Jack Ma referred to the transaction in a statement as a “liquidity programme” that would allow the company's employees to “focus on growing our business and continuing to create value”.

In recent years, it has become increasingly common for founders and employees of internet and tech companies to cash out some of their shares to private equity firms via “onesies”, or single-asset, single company transactions, as well as via liquidity programmes where the company designates a preferred buyer or buyers. A number of private equity firms focus specifically on this niche in the secondaries market, including groups like Millennium Technology Value Partners, a New York-based spinout from The Blackstone Group, and UK-headquartered Azini Capital, which is backed by more “traditional” secondaries firms Greenpark Capital and Lexington Partners.

The Alibaba deal is expected to be completed by December this year.

In a separate transaction, Chinese computer game developer Giant Interactive also agreed to commit $50 million to Yunfeng Capital for the purchase of Alibaba shares.

Founded by Ma in 1999, Alibaba brings together importers and exporters of various goods from more than 240 countries and regions. In 2005 the company formed a partnership with Yahoo! and subsequently took over its operation in China. 

The internet search company currently holds a 40 percent stake in Alibaba. It is unclear if Yahoo!’s stakeholdings will be affected following the transaction, but according to the Wall Street Journal, Yahoo!’s ownership has been a hurdle for the US company's board and management in figuring the company's future as Yahoo! cannot easily sell the stake because of tax and other issues. Media reports last week suggested Silver Lake might be mulling a bid for Yahoo!.

Investors have been scouring the region in the hopes of discovering the next Google or Alibaba which raised $1.67 billion and $1.5 billion respectively when they listed.

Earlier this month, Innovation Works, a Chinese investment company founded in 2009 by Kai-fu Lee, former head of Google in China, raised $180 million for its debut fund from a number of high profile investors including WI Harper, Silicon Valley Bank, Sequoia Capital, Foxconn, Motorola and Foundation Capital and current or former executives from internet companies like Yahoo, Google, YouTube, Facebook and Amazon.

The firm said it would focus on companies related to China’s booming internet-related sectors; the country reportedly had 485 million internet users at the end of June.