High political and financial stakes face anyone willing to acquire TikTok as the race is now on
Big players in the frame to take over the video loop app have serious risks to assess, not least the price
‘Being big in the social media business is no simple game’
‘These firms like to be low-profile whereas this deal is extremely high profile’
Before TikTok, there was Vine. The Americanfounded, short-form video app was used at the height of its popularity by more than 200 million people, letting them create seven-second looping videos featuring music and comedy. A bit like TikTok.
In January 2017, however, the app met an untimely end after being shut down for good by Twitter, which had bought the firm for a reported $30m (£23m) in October 2012. Three years on from its failed Vine venture, Twitter has found itself in the running to buy TikTok.
Owned by Chinese technology giant ByteDance, TikTok has exploded in popularity with 800 million users globally, the vast majority teens flocking to the app for short clips of dance routines and lip-synced comedy.
Twitter’s potential bid comes as
TikTok’s future rests on a knife edge. Last week, Donald Trump announced a US ban on TikTok would kick in on Sept 15 unless Microsoft or “somebody else” bought it. TikTok is expected to enter a legal challenge against the US executive order in a court today. A deal could value TikTok at around $30bn, a source told The Daily Telegraph. Other estimates have put it at anywhere between $10bn and $30bn, depending on how much of its international business ends up in the sale. So who are runners and riders in the race to snap it up?
At the head of the pack is Microsoft, which certainly has the firepower to buy TikTok with more than $130bn in cash. But Bill Gates, Microsoft’s billionaire founder, warned in an interview that such a deal would be a “poisoned chalice”. He added that “being big in the social media business is no simple game”.
Over the years, Microsoft has moved away from consumer technology. Its old messaging apps, such as Windows Live Messenger, have been shut down. While it still has a substantial gaming business with Xbox and Minecraft, many investors see Microsoft’s bread and butter as enterprise computing, cloud and its Office products. Its deal to buy Skype, the online video chat service, for $8.5bn in 2011 was seen as a disaster. However, buying TikTok would be in line with Microsoft’s stance towards China where it has a sizeable presence, unlike some other tech heavyweights.
From a technical standpoint, completing the deal could be complex. Microsoft and TikTok are hoping to agree a deal by Sept 15, but it is unclear whether this will only be for TikTok’s US, Canadian, Australian and New Zealand arms, or its full Western business.
Separating out the code of TikTok from Douyin, the Chinese app it was based on, could be another challenge that may extend the timeline.
For Twitter, the hefty valuation on TikTok would make any such deal a stretch. It only has a market capitalisation of $30bn compared with Microsoft’s $1.6 trillion, so it would likely need other investors’ support.
But while Microsoft is still seen as the frontrunner, Twitter’s reported intervention could be a better fit.
“Twitter makes a lot more sense to me. They have a proactive music and video strategy,” said one technology sector adviser.
Twitter’s smaller stature could work to its favour. It is likely to come under much less scrutiny than counterparts like Microsoft, which could face the ire of regulators on the competition front.
Twitter has some deep pocketed investors, too. Silver Lake, the private equity fund, invested $1bn in it earlier this year. Activist shareholder Elliott Management also has a stake. There are also several financial firms and investors waiting in the wings that could get involved in plans to separate TikTok’s US entity, if the rescue deal meant it could continue its operations.
Sequoia and General Atlantic
Two of the biggest investors in ByteDance, the Chinese parent of TikTok, Sequoia and General Atlantic, have reportedly expressed an interest in buying it.
Sequoia, which first invested in ByteDance in 2014, holds a 10pc stake in the company. It recently raised a record $8bn flagship fund to invest in technology start-ups. General Atlantic, meanwhile, raised a $3.3bn fund. The two funds would be able to at least partially fund the deal for TikTok’s US business. “Sequoia’s pedigree is second to none; they could show they were early investors in companies like Apple, PayPal and Google,” said Mirabaud’s Neil Campling. “The only problem is these firms tend to quite like to be low-profile whereas this deal is extremely high profile.”
Apple was also pitched the deal, according to one report, but has denied it has any interest. The Wall Street
Journal reported SoftBank had considered “throwing its hat into the ring”. SoftBank declined to comment.
For any of the firms involved, a big gamble is just how big will TikTok become. Could this scrutiny derail its international growth entirely, and just how much are they prepared to pay?
“There could actually be several [TikTok rivals],” said a source familiar with ByteDance. “A TikTok-equivalent is being created by Instagram. Possibly another by Snapchat. It is hard to give a value to TikTok, one in the US, and TikTok two outside of it.”
With so much complexity and risks, only a firm with as much cash as Microsoft may be able to take on the deal. Its talks with TikTok are, so far, the only ones that apparently have the say-so of the US president. With a deadline of Sep 20 to get a deal done, any gatecrashers had better act now.