January 13, 2011 11:02 pm

LivingSocial buys stake in Spanish rival

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LivingSocial, the collective buying website that competes with Groupon, has acquired a majority stake in a Spanish rival a little over a month after receiving a $175m cash injection from Amazon.

The US group said that buying into LetsBonus would give it access to customers and sales teams in Spain, Italy, Portugal, Argentina and Mexico. LivingSocial boasts more than 16m subscribers and operates in cities across the US, Canada, Australia, Ireland and the UK. Set up just three years ago, the group says it expects to book sales in excess of $500m in 2011.

Social shopping websites sell products from local retailers at large discounts to customers who subscribe to offers via e-mail. They have expanded rapidly in recent years and their success has made them an increasingly attractive proposition for investors.

Groupon, the market leader in the online discount market, abandoned talks with Google last year over plans for a possible takeover that was estimated to be worth as much as $6bn. Chicago-based Groupon has since raised $950m of financing from a group of venture capital investors. This week it made three acquisitions in India, Israel and South Africa.

Tim O’Shaughnessy, chief executive and co-founder of LivingSocial, said that the Groupon fundraising provided welcome validation for the industry as a whole. “We were keen and interested observers [on the Groupon deal],” he said.

As well as Amazon, LivingSocial’s other backers include Grotech Ventures, run by AOL co-founder Steve Case, US Venture Partners and Lightspeed Venture Partners. Mr Case has also personally invested in the website.

Mr O’Shaughnessy said that he expected to see more consolidation in the sector as companies looked to expand internationally.

He said that floating LivingSocial was an option but the group was not focused on an exit at the moment.

Groupon is expected to seek an initial public offering in the near term.

Analysts have questioned whether the valuations being put on collective buying businesses are justified.

Sucharita Mulpuru, a retail analyst at research firm Forrester, said that the path to growth for groups such as Groupon and LivingSocial had been extremely fast.

However, she said the model relied on having an aggressive sales team in each market that was continually able to secure the best deal. “A lot of these companies are one-trick ponies and their valuation is based on a dream that they can one day be more than that,” she said.

Mr O’Shaughnessy declined to comment on the details of the LetsBonus deal.

LetsBonus, which launched in September 2009, is LivingSocial’s fourth acquisition.

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