On December 24th, Beike announced on the Hong Kong Stock Exchange that it would terminate the related party transaction to acquire all remaining equity of Space Intelligence, due to "uncertain factors in achieving delivery conditions after careful consideration".
In October 2023, Beike announced that its wholly-owned subsidiary Beike Meijia had signed an equity acquisition agreement with Space Intelligence, acquiring Space Intelligence as its wholly-owned subsidiary for a maximum of approximately 1.55 billion yuan. The brand Love Space under Space Intelligence will also be acquired by Beike.
However, this highly anticipated transaction, which was expected to be completed in the first half of 2024, has now fallen through.
Press the pause button on the acquisition path of Beike Home Decoration
As a representative enterprise in the era of Internet home decoration, AiSPACE, founded in 2014, once led the whole decoration product transformation in the home decoration industry with the three major infrastructures of "self built supply chain, information system, and industrial workers" as the pillars. As early as 2016 and 2018, Lianjia had made two strategic investments in Love Space. According to public information statistics, including Lianjia, Love Space has received 8 rounds of financing from 2014 to 2018. In addition to Lianjia, the list of investors includes not only financial investment institutions such as Shunwei Capital, Jinglin Investment, Share Investment, and Territory Investment, but also industrial investments such as Nature Home, Gome Capital, and Tiandi No.1.
In the market view, AiSpace has gained a certain popularity and market share after years of development, which can not only help Shell rapidly expand its expansion in the home decoration industry, but also help Shell improve the efficiency and user experience of the home decoration industry through its mature experience in standardized processes and Internet operations. Last year, after announcing the acquisition of Love Space, Peng Yongdong bluntly stated in an internal letter that "Love Space is a teacher in bed, and Chen Wei and his team share their insights and practices in the home decoration industry without reservation.
After Beike's announcement, Chen Wei, the founder of Love Space, further explained the termination of Beike's acquisition of Love Space. He said, "This acquisition failed to pass the anti-monopoly approval due to the potential risk of industry monopoly. After friendly negotiations between both parties, Love Space and Beike terminated the merger plan together." However, according to the revenue of Beike's home decoration business, even with Love Space's annual revenue of about 1 billion yuan, it is only about 20 billion yuan, which is less than 2% of the overall market size of 3.5 trillion yuan, and it seems far from monopoly.
An industry insider analyzed to reporters, "Whether it constitutes an industry monopoly needs to be determined by regulatory authorities. In addition, the difficulties in corporate mergers and acquisitions include valuation difficulties, integration challenges, policy barriers, financial risks, legal risks, operational risks, and other aspects. If one difficulty cannot be overcome, it will lead to the failure of the entire transaction
Whether it's real estate transactions or home decoration, they are industries with strong regional characteristics. If we only look at the overall market share nationwide, it's not rigorous. Although Beike only has a market share of about 10% in the real estate agency market, it's difficult to avoid Lianjia when buying and selling second-hand houses in Beijing. On the one hand, Beijing is the city where Lianjia has been deeply rooted, and the bedding industry mainly targets the Beijing market. On the other hand, Love Space has also developed from Beijing, and the merger may have a certain impact on the market, "the person added.
The frenzy of mergers and acquisitions by Beike in the real estate brokerage industry is still vividly remembered today. In February 2015, Lianjia first acquired Yicheng Real Estate, the largest second-hand housing agency in Chengdu. In March, it successively acquired two major real estate agencies, Shenzhen Zhonglian Real Estate and Shanghai Deyou Real Estate. Afterwards, Shengshi Butler in Hangzhou, Gaoce Real Estate in Beijing, and Mantanghong in Guangzhou became the merger targets of Lianjia one after another, making Lianjia the largest real estate brokerage company in the country.
With the suspension of the acquisition of Love Space, it is uncertain whether the plot of quickly becoming the industry leader through large-scale mergers and acquisitions in the real estate agency industry can be staged again.
A new growth curve with high expectations
In recent years, Beike's home decoration business has developed rapidly and is becoming an important driving force for its revenue.
Beike's foray into the home decoration industry began in 2015. That year, Beike founder Zuo Hui and Vanke Vice President Liu Xiao hit it off at Starbucks, and Vanke Lianjia Decoration Company, a collaboration between Vanke and Lianjia, was established, once occupying the top position in the Beijing regional home decoration market share. However, the subsequent development of the company's business was not smooth, and Vanke, which was originally in a dominant position, withdrew. In October 2017, Beijing Meimei Home Decoration was established, launching the "Nanyu" home decoration brand. At the same time, the first offline experience store "Nanyu 5A Life Hall" opened in May of the following year, which was Zuo Hui's second attempt in the home decoration industry.
In April 2020, at the 2nd anniversary online press conference of Beike Zhaofang, Beike Chairman and CEO Peng Yongdong announced that Beike Zhaofang would enter the home decoration industry and launch its own brand, Wowo Home Decoration, based on Wanchain. Afterwards, Beike began to make efforts in the home decoration industry. At the end of 2021, Beike announced the upgrade of its "one body, two wings" strategy, stating that it would "use the power of Beike to create another Beike". In July 2023, it will be upgraded to the "One Body Three Wings" strategy, where "One Body" refers to the real estate brokerage business, while the "Three Wings" include home decoration, Hui Ju, and Bei Hao Jia.
Afterwards, Beike's home decoration business entered a period of rapid development, and the proportion of revenue continued to increase. From 2021 to 2023, the revenue proportion of home decoration business in Beike was 0.24%, 8.31%, and 14.01%, respectively. By the first half of 2024, this proportion has reached 16.23, although the proportion is still lower than that of real estate brokerage business, the growth rate is astonishing.
In the third quarter of this year, Beike's net income from home decoration and home furnishing business increased by 32.6% year-on-year to 4.2 billion yuan. At the performance conference call, the management of Beike stated that during the reporting period, Beike's home decoration contract value increased by 25% compared to the same period last year, with contract value growth rates exceeding 50% in cities such as Beijing, Guangzhou, Zhengzhou, and Nanchang. The profit margin contributed by this business for the quarter reached 31.2%.
In addition to its own efforts, mergers and acquisitions have also had an immediate effect on the explosive growth of Beike's home decoration business. In July 2021, Beike announced the acquisition of Shengdu Decoration for 8 billion yuan. The final total consideration for the transaction, which was completed in April 2022, was 3.92 billion yuan in cash and 44.31 million shares of the company's Class A common stock. Shengdu Home Decoration was established in 2002, with its main business being home decoration services in the form of full decoration, mainly concentrated in the Jiangsu, Zhejiang, and Shanghai regions. Before acquiring Shengdu, Beike's self operated bedding home decoration had a revenue of only 197 million yuan in 2021; The home decoration revenue in 2022 is about 5.047 billion yuan, a year-on-year increase of over 25 times.
Who will be the industry disruptor?
The home decoration market is a typical "big industry, small business" that never lacks players who want to disrupt the industry.
According to the "2023 China Home Decoration Industry Research Report" released by iResearch Consulting, the size of China's home decoration industry is expected to reach a market size of 3.7 trillion yuan by 2025, and the entire industry will maintain a growth rate of over 7% in the coming years. However, in reality, over the years, this market has never seen a top home decoration brand with a high market share, and the competition pattern is relatively scattered. In 2023, the market share of each region in the country is relatively low, even in first tier cities and new first tier cities, the market share is mostly at a level of 1% -2% or lower.
Faced with such a market, various players who want to disrupt the home decoration industry are constantly emerging. Internet giants such as Byte, Ali, JD, Baidu, etc. have entered the cross-border office. Byte's "Live Home", Ali's "Lieping Home", JD Home Decoration, Baidu's "Zhuang Xin Home", professional decoration platforms such as Spatula, Qijia.com, and design platforms such as Kujiale have also entered the office.
For example, "Zhuhaojia" was originally one of the segments of "Zhuxiaobang", an Internet home decoration service platform under Byte. The business scope of "Zhuxiaobang" covers decoration cases, home decoration knowledge, home decoration services and other aspects. At the end of 2022, "Zhuhaojia" was spun off from "Zhuxiaobang" and became an independent decoration business platform. At the beginning of 2024, ByteDance announced to adjust the business direction of its self owned home decoration "Live at Home", turning it into a model of exploring the service guarantee of home decoration business.
Although Internet enterprises have some inherent advantages in entering the home decoration market, the development is not smooth from the results. Not only bytes, the home decoration business of other Internet giants should either stop transforming, or it is difficult to make further progress. Professional home decoration platforms such as Tubatu and Qijia.com have also been facing operating pressure of losses or difficulty in making profits.
Obviously, these Internet players who poured into the home decoration industry overestimated the value of traffic, but underestimated the ability of offline delivery. The process of the home decoration industry itself is complex, and the whole chain is full of various uncertainties related to people. Compared with the standardized commodity sales process on the Internet platform, it is more complex, which restricts the scale and nationalization of enterprises. Referring to the US market, home decoration exists as a retail format, but essentially it is also a product company. For example, The Home Depot, an American home decor retailer, holds 28% of the US home retail market and its current market value is close to $400 billion.
To this day, there are still new players being attracted into the home decoration industry. In April of this year, the smart home brand Habitat announced the completion of angel and Pre-A rounds of financing, with a total amount of 653 million yuan. Among them, the Pre-A round is led by Ideal Automobile, with investors such as Stone Technology and New North Science and Technology Innovation Fund following suit. Shen Yanan, the founder and CEO of Habitat, was previously known to the public as a co-founder of Ideal Automotive. In 2015, Shen Yanan and Li Xiang, the founder of Ideal Auto, hit it off and became the second employee of Ideal Auto. After fully withdrawing from Ideal Auto in 2023, Shen Yanan began to invest in new entrepreneurial projects in home decoration.