Foreign mobile advertising companies are prohibited from gaining an operating license in China, so it makes sense for a foreign company to seek a Chinese buyer to exploit the Chinese market.
China-based Orient Hontai Capital has acquired a majority stake of advertising technology start-up AppLovin for US$1.42 billion.
The U.S.-based ad tech company reportedly sent executives to China earlier this year to seek ways to enter the potentially lucrative Chinese market.
AppLovin currently claims over two billion users. AppLovin reportedly generated US$234 million in revenue in 2015, and revenues are expected to double this year, though the number could not be verified as it is still a closely-held entity.
After the completion of the deal, which is expected to take place before year end, Orient Hontai Capital is to help the company expand in China.
But this support may be cumbersome for the American company. Because foreign mobile advertising companies are not permitted operating licenses in China, AppLovin would likely need to create a variable interest equity entity to hold its assets in China. Through this VIE arrangement, the Chinese government would allow the 100% Chinese-owned local company to operate AppLovin's business in China, but AppLovin would have no true legal ownership of the China business.