(Reuters) – Chinese gaming company Beijing Kunlun Tech Co Ltd (300418.SZ) is close to signing an agreement to sell popular gay dating app Grindr LLC to a group of investors, according to people familiar with the matter.
FILE PHOTO: Grindr app is seen on a mobile phone in this photo illustration taken in Shanghai, China March 28, 2019. REUTERS/Aly Song/File Photo
The move comes after a U.S. government panel ordered Kunlun to divest Grindr, which it has owned since 2016. The panel, dubbed the Committee on Foreign Investment in the United States (CFIUS), was concerned that the personal information of millions of Americans, such as private messages and HIV status, was at risk of falling into the wrong hands.
One of the investors in the group that is nearing a deal to acquire Grindr is James Lu, a former executive at Chinese search engine giant Baidu (BIDU.O), three of the sources said. The identity of the other investors in the consortium could not immediately be learned.
The deal price that Kunlun is agreeable to for Grindr could also not be learned, but the negotiations during the sale process were based on a valuation of Grindr of around $500 million, one of the sources said.
The sources cautioned that there is no certainty a deal will be struck and requested anonymity ahead of an official announcement.
Grindr declined to comment, while Kunlun and Lu did not immediately respond to requests for comment.
Based in West Hollywood, California, Grindr has over 4.5 million daily active users, and describes itself as the world’s largest social networking app for gay, bisexual, transgender and queer people.
Kunlun said in a filing with the Shenzhen Stock Exchange in January that Grindr’s revenue hit a record high in 2019, as its number of active users continued to grow. It did not disclose the revenue figure in the filing.
Kunlun first acquired 60% of Grindr in 2016 for $93 million, amid a wave of acquisitions of U.S. technology companies by Chinese firms. At the time CFIUS focused on traditional national security concerns, such as the use of technology for potential military applications.
It bought the remainder of Grindr in 2018. That same year, CFIUS, which scrutinizes foreign acquisitions of U.S. companies, started looking into the Grindr deal to see whether it raised any national security risks, Reuters previously reported. Following talks with CFIUS, Kunlun said in May 2019 it would divest Grindr by the June 2020.
CFIUS’ intervention in the Grindr deal underscored its focus on the safety of personal data, after it blocked the acquisitions of U.S. money transfer company MoneyGram International Inc (MGI.O) and mobile marketing firm AppLovin by Chinese bidders.
Previous examples of the United States ordering the divestment of a company after the acquirer did not file for CFIUS review include China National Aero-Technology Import and Export Corporation’s acquisition of Seattle-based aircraft component maker Mamco in 1990, Ralls Corporation’s divestment of four wind farms in Oregon in 2012, and Ironshore Inc’s sale of Wright & Co, a provider of professional liability coverage to U.S. government employees such as law enforcement personnel and national security officials, to Starr Companies in 2016.
RING-FENCING GRINDR FROM KUNLUN
Reuters reported last year that Kunlun shifted a significant portion of Grindr’s operations to Beijing and gave some of its Beijing-based engineers access to the social media app’s database.
After CFIUS asked Kunlun to divest Grindr, the Chinese firm started to separate its operations from Grindr, and told the panel the Beijing team’s access to Grindr’s database had been restricted.
Kunlun also shut down Grindr’s Beijing office, parting ways with some of the roughly two dozen employees there, Reuters reported.
Lu, who also worked for Amazon.com Inc’s (AMZN.O) web services division, told website Tencent News in 2018 that he was raising private equity funds. In the last few months, he had contacted family offices to seek financing for the acquisition of Grindr, according to three of the sources.
Kunlun is one of China’s largest mobile gaming companies. It was part of a buyout consortium that acquired Norwegian internet browser business Opera Ltd for $600 million in 2016.
Founded in 2008 by Tsinghua University graduate Zhou Yahui, Kunlun also owns Xianlai Huyu, a Chinese mobile gaming company.
Reporting by Echo Wang and Chibuike Oguh in New York; Editing by Muralikumar Anantharaman