Match Group buys Korean video chat startup for $1.73 bn

Match Group, the operator of the world’s largest dating app Tinder, has agreed to buy 100% of South Korea’s leading video chat startup Hyperconnect for $1.73 billion, both companies said on Tuesday, paving the way for SoftBank's exit from the venture.

In the US social media group's biggest-ever acquisition, the purchase price represents about eight times Hyperconnect’s 2020 revenue, which the Korean company said exceeded $200 million, or a 50% increase from a year earlier.

The cross-border deal marked the second-largest acquisition of a South Korean startup, since Germany’s Delivery Hero acquired Woowa Brothers, the operator of South Korea’s No.1 delivery service app, for 4.75 trillion won in December 2019.

For SoftBank Ventures and Seoul-based Altos Ventures, the deal means their divestment of a combined $10.6 million put into Hyperconnect. Its enterprise value has swelled by more than 10 times since their investment.

“Hyperconnect was highly valued among investors because it has been a profit-making unicorn for several years and has a capability to lead the contactless industry, which has been growing since the global pandemic struck,” an investment industry source told the Market Insight.

Match Group is keen to combine Hyperconnect’s video chat technology with its Tinder app based primarily on pictures. It had kept a close eye on the Korean venture, focusing on its broad user base across countries, unique technology and profitable business structure, said industry sources.

“Match Group kept trying to expand into Asia, but it made little progress on that front," said a Hyperconnect official. "It wanted to find a breakthrough by acquiring Azar.”

The Korean startup, founded in 2014, has been looking for pre-IPO investors since late 2019 to fund global expansion. From the second half of last year, Hyperconnect also began the process of selling its management rights, picking Morgan Stanley as the sale manager, in a dual track process.

The operator of Azar and Hakuna Live was established by engineers in their thirties from Seoul National University and Pohang University of Science and Technology, including CEO Sam Ahn.

In its first business year of 2014, Hyperconnect received $2 million from Altos Ventures in seed funding and then raised an additional $8.6 million from both Altos Ventures and SoftBank Ventures. Financial investors, which also include Korea Investment Partners Co. have around a 30% stake in Hyperconnect.

Its revenue soared almost 20 times to 169 billion won in 2019, compared with 9.4 billion won in 2015. Operating profit spiked by over 40 times to 20.3 billion won in 2019, versus 500 million won during the same period.

Hyperconnect runs two flagship apps – Azar and Hakuna Live. Azar is one-on-one video and audio chat app allowing users to connect with others from around the world with language translation services. When users input their interests, an AI automatically connects them on video with potential friends across the globe. Users can choose a person they like by swiping right on the screen.

Azar has been 540 million times downloaded from 230 countries since its launch in 2014. Global users account for 99% of its over 100 million users, driven by explosive growth in Asia, in particular from the Middle East and India.

Hakuna Live is an interactive, social livestreaming app, enabling group video and audio broadcasts. It offers various features such as virtual gifting, AR-powered avatars and profile enhancements. Since launched in 2019, Hakuna Live has been downloaded more than 23 million times, mostly from South Korea and Japan.

Hyperconnect made localization efforts, including hiring foreigners from 20 countries, including France and the Czech Republic. They account for 20% of its workforce. It also runs local offices and subsidiaries in eight countries, including Germany and Turkey.

Hyperconnect’s mobile WebRTC (real-time communication) and artificial intelligence technology appealed to the Nasdaq-listed group as well. Using the mobile RTC technology, Azar provides stable, high-quality video chat services even in countries with a poor network environment and with low-end mobile phones. It also developed AI technology to solve the problems with mobile gadgets such as small memory storage capacity and slow data processing.

"As the social discovery space continues to expand, the timing couldn't be better to partner with a global operating expert like Match Group," Hyperconnect CEO Ahn said in a joint statement. “We will make another round of large-scale global expansion, while advancing into big markets such as North America and Japan.”

Ahn and Chief Technology Officer Yong Hyun-taek will continue to run the company, along with other core members, a main factor in Ahn's decision to sell the company to the Match Group, in addition to the hefty price tag.

The global dating app market is forecast to grow to $10.4 billion by 2027 from $7 billion in 2019, according to Verified Market Research.

Match Group aims to close the cash-and-stock deal in the second quarter of this year.

Write to Jung-hwan Hwang and Jun-ho Cha at jung@hankyung.com
Yeonhee Kim edited this article.