Groupon is selling its Indonesia business to fitness membership startup KFit

Groupon continues to streamline its global business after it announced the sale of its operations in Indonesia to a somewhat unlikely buyer. KFit, a one-year-old startup that sells gym and fitness memberships in the same style as U.S.-based ClassPass, is picking up Groupon Indonesia in an undisclosed deal.

Malaysia-based KFit said it has “no immediate plans” to change Groupon Indonesia’s business, which claims to have more than one million subscribers and over 15,000 merchants. That means that the company will branch out into regular deal-based e-commerce that Groupon is famous (infamous?) for. The mechanics of the deal, which is scheduled to close in Q3 2016, are notable too: Groupon Indonesia is to become a wholly-owned subsidiary of KFit, with Groupon Inc becoming “a strategic shareholder of KFit”.

That suggests that there may have been little-to-no price upfront for the transaction. Groupon purged a number of its struggling country businesses last year, so it remains possible that it was open to offloading its Indonesian business at an attractive cost.

The deal signals KFit’s entry into Indonesia, the world’s fourth most populous country and one of the few sizable markets where smartphone sales are tipped to continue to rise despite a global slowdown. KFit is present in 10 cities in Asia Pacific, including countries in Southeast Asia, Australia, Taiwan and Korea, and it has raised over $20 million from investors like Sequoia Capital — via its India and Southeast Asia fund — and debt-financing from Innoven Capital.

KFit hinted that it would expand into new categories when it announced a $12 million Series A round in January, and Indonesia-based Venturra Capital led its Series A, but few people would have predicted that it would turn out like this. (ClassPass is also venturing into similar ground, it should be noted.)

There are, however, strong links between the two companies. KFit CEO Joel Neoh started group-buying site GroupsMore in Malaysia which Groupon acquired within months of launch. Post-acquisition, Neoh led Groupon’s operations in Asia before leaving to start KFit in 2015. Fellow KFit co-founder Yeoh Chen Chow was regional operations director for Groupon APAC, too.

With Groupon generally on the decline, or at least struggling compared to the days of regular acquisitions worldwide, why would Neoh get back into the business?

There are a few possible answers depending on your personal view.

Indonesia is a huge market, it is tipped to drive Southeast Asia’s internet economy to $200 billion by 2025, and e-commerce remains nascent despite tens of billion of dollars invested by Rocket Internet (Lazada and Zalora) and retail conglomerate Lippo (Matahari Mall). That growth is tempting for ambitious startups, particularly if you can get a rolling start by acquiring a business and get a favorable acquisition cost, too.

That’s the more positive theory, but there remains the strong possibility that KFit is diversifying because its current model isn’t working as well as expected. Back at that Series A, we reported that KFit was operating with a pretty serious burn rate — negative $320,000 in Q3 2015, according to internal documents we had seen — which had put it months from running out of cash in late 2014. It could be that the opportunity to re-enter the group-buying space, where Neoh has had success, is seen as a way to augment the finances and provide an engine for growth.

“Indonesia represents an untapped opportunity for us and serves as a natural expansion of our regional footprint in Southeast Asia,” Neoh said in a press statement.

“The combination of Groupon Indonesia’s established presence and KFit’s experience in building a mobile-first platform will propel us in a high-growth local commerce market, further accelerated by increasing mobile penetration,” he added.

Speaking to TechCrunch in an interview, Neoh confirmed that he was unable to provide details of the deal itself — since Groupon is a public company and the transaction is pending — but he did explain that it is somewhat an “anomaly.”

“It’s a very specific case as we’ve been looking at the [Indonesian] market since the end of last year. It’s very attractive [country] for a consumer-facing company,” he said.

Neoh said KFit may enter one or two more cities before the end of this year, but it isn’t actively seeking out other M&A opportunities. Going forward he said the company will experiment with new models for the Groupon business.

“We want to build a platform [for] any time you are going out to experience local services… we’re building beyond a deals platform,” he said.

That’s also the focus for KFit’s 10 other cities in Asia Pacific, but they are likely to develop the model at a slower pace than Indonesia, where KFit has this Groupon momentum, Neoh added.

Article updated June 5 11:40 pm PDT with further quotes and more information