Alibaba Group Holding has agreed to buy a controlling stake in Southeast Asian online retailer Lazada Group for about $1bn, its biggest deal overseas, as the Chinese e-commerce giant seeks fertile new turf while growth slows at home. 
Lazada, founded by Germany’s Rocket Internet in 2012, is headquartered in Singapore and also operates in Malaysia, Indonesia, the Philippines, Thailand and Vietnam. That affords Alibaba a chance to tap the region’s growth potential, but the market is also competitive and fragmented, with only a tiny fraction of total retail sales currently conducted online. 
“Southeast Asia has a lot of overlap with China in terms of consumer habits, intra-regional trade and tastes,” said Duncan Clark, chairman of investment advisory firm BDA China and author of a book on Alibaba. 
“Rocket in this case has managed to create a successful, multi-market player in a region which needs scale and breadth to be viable. This has obvious appeal to Alibaba.” 
Lazada saw revenue jump 81% to $190.0mn in the first nine months of 2015, while active customers more than tripled to 7.3mn. However, its adjusted loss before interest, tax, depreciation and amortisation more than doubled to $212.9mn. Rocket reports 2015 figures tomorrow. 
Under the deal announced yesterday – Alibaba’s biggest overseas investment so far, according to Thomson Reuters data – the firm will buy about $500mn of newly issued Lazada shares. The rest will be bought from current shareholders. 
These include Britain’s biggest supermarket operator, Tesco, which said it would sell an 8.6% stake for $129mn, valuing Lazada at $1.5bn. Rocket and Swedish investor Kinnevik will also sell shares. 
Neither Alibaba nor Lazada specified the size of the stake purchased, but the sales imply a two-thirds holding. 
Alibaba also has the option, 12-18 months after the deal closes, to buy remaining stakes from Lazada shareholders. 
China is getting tougher for Alibaba. In the last three months of 2015, the total value of goods transacted on the company’s e-commerce sites rose by its slowest annual rate in more than three years.  The company has been hit by a barrage of issues, including China’s worst economic growth in a quarter of a century, an effort to clean up prevalent fakes on Alibaba’s platforms, and tough competition from smaller rival JD.com, analysts have said. 
Rocket Internet is known for funding and ultimately selling start-ups that follow the model of successful existing businesses. When Lazada first emerged, it was pegged as a Southeast Asian version of Amazon.com. 
The sale is welcome news for Rocket, which has seen its stock sag since it listed in October 2014 on investor concern that all its leading start-ups are still making heavy losses. The stock was up 4.9% at 1144 GMT. 
“We had always had concerns that Lazada could fall victim to intense competition from Alibaba, yet here we have an example of an internet giant buying out the smaller competitor at a substantial valuation,” said Berenberg analyst Sarah Simon. 
“Fears that Rocket Internet cannot build credible businesses should thus be appeased.”  Lazada works with third-party players and develops its own logistics to improve goods delivery to customers’ doors. In December, the company said it planned to double its number of warehouses from 10 to 20 over the next few years to keep up with a surge in e-commerce from customers outside big cities. 
The deal isn’t Alibaba’s first investment in Southeast Asia. The Chinese company also has a stake in logistics firm Singapore Post. 
The e-commerce market for business-to-consumer sales across all of Indonesia, the Philippines, Singapore, Malaysia, Vietnam and Thailand was just $10.5bn in 2015, or 1.5% of retail volume, according to consultancy firm Frost & Sullivan. 
By comparison, it accounts for 12% of retail in China, and 8% in the US. 
Lazada chief executive Max Bittner said Southeast Asia “is highly fragmented and diverse with significant barriers to entry”. 
Credit Suisse (Hong Kong) Limited acted as exclusive financial adviser to Alibaba on the transaction, while Goldman Sachs (Asia) was exclusive financial adviser to Lazada.