BRICs Meet SARCs: Tencent, Digital Sky Technologies and Naspers

  • Posted by
  • on April 13th, 2010

By now we are all familiar with the concept of the BRICs (Brazil, Russia, India, and China) as four nations whose “combined economies could eclipse the combined economies of the current richest countries of the world” by 2050.

Today China’s largest Internet firm Tencent announced a $300m investment into Russia’s Digital Sky Technologies Limited (DST). DST is the most powerful Russian Internet firm, and has investments across Eastern Europe as well as in Facebook and Zynga in the US. South Africa’s Naspers owns 35% of Tencent, is an active investor in digital media in many emerging markets, and shares investments (including Mail.ru) and partnerships with DST in Russia and Eastern Europe.

Are we now seeing the emergence of a global Internet power bloc along the lines of the BRICs, one that, if we want to be facile, perhaps we can call the SARCs?

DST is now fairly well known in the US after its investments in Facebook and Zynga. Hong Kong-listedTencent, with a market capitalization larger than Yahoo’s and Ebay’s, is beginning to get the recognition it deserves as one of the top Internet firms in the world. Naspers, which may be one of the most succesful corporate media investors in history, is still under appreciated in the United States. At Tencent’s current market capitalization of around $38 Billion (approximately 295B Hong Kong Dollars), Naspers’ $32 million investment in Tencent in 2001 is worth $13.3 Billion.

So what is Tencent getting with this investment? In the release Tencent President Martin Lau said:

“We are excited to enter into a long-term strategic partnership with DST, a key global Internet player and a leader in Russian-speaking Internet markets. The investment allows us to benefit from the fast-growing Internet market in Russia, as well as to leverage our technical and operational know-how to strengthen the leadership position of DST and explore new business opportunities in the Russian-speaking Internet markets.”

I think it is also worth noting that DST, through its stake in Mail.ru, has a huge presence in online gaming, one of Tencent’s primary growth engines. According to DST’s corporate web site:

Astrum Online Entertainment, now a part of Mail.ru, is the largest developer and operator of MMO games in Russia operating more than 30 MMO game titles. Nival Online, Nikita.Online, IT Territory, TimeZero and DJ Games operate under the Astrum umbrella.

The investment in DST may also lead to Tencent co-investing with DST in deals in the US and around the world. Tencent has done smaller investments abroad–Riot Games and Outspark in the US, VinaGame in Vietnam, Naspers’ MIH India–but given Tencent’s size and cash balance (After the DST investment Tencent still has approximately $1.5B in cash) those deals are relatively tiny. The new partnership with DST could help bring Tencent into the first tier of global digital media investing, and the huge pools of capital DST, Tencent and Naspers control should make entrepreneurs the world over drool.

Note: Those of you who see the hand of Goldman Sachs everywhere might appreciate that according to the Financial Times “DST Global’s backers include Goldman Sachs, US hedge fund Tiger Global and Alisher Usmanov, the Russian investor.” Two of DST’s top partners are also Goldman Sachs alums. Goldman appears to be proving once again that they are just smarter and earlier than everyone else.

UPDATE: I neglected to mention that Martin Lau, President of Tencent, is also a former Goldman Sachs executive.

Please tell me what you think in the comments.

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