The9 Signed a Legally Binding Term Sheet with a Leading AI SaaS Legal Service Platform 365LAWHELP.COM

Rhea-AI Summary

The9 Limited (NCTY) announces the acquisition of 19% shares of Fazhidao, a leading AI SaaS legal service platform in China, with a purchase option for up to 51% shares. Fazhidao's gross sales exceeded US$50 million in 2023, offering various legal services powered by AI technology. The investment includes cash and restricted shares, aiming for global expansion and growth in paid subscribers.

Positive

• The acquisition of Fazhidao's shares expands The9's presence in the AI legal service sector, leveraging Fazhidao's established platform and customer base.
• Fazhidao's impressive financial performance with over US$50 million in gross sales in 2023 showcases its strong market position and revenue generation capabilities.
• The investment in Fazhidao demonstrates The9's strategic focus on AI technology applications and partnerships to drive business growth and innovation.
• Fazhidao's AI legal technology development, supported by numerous patents and copyrights, highlights its commitment to technological advancement and service quality.
• The investment aligns with The9's vision of utilizing AI legal technology to cater to the legal needs of individuals and corporations in China and the U.S., aiming for global expansion and market leadership.

Negative

• None.

Insights

Market Research Analyst

The strategic investment by The9 in Fazhidao represents a significant move into the AI-driven legal services market, a sector that is experiencing rapid growth due to the increasing demand for efficient and cost-effective legal solutions. The acquisition of a 19% stake, with an option to increase to a majority stake, positions The9 to capitalize on the expansive legal service market in China, which has a reported value of US$40 billion in 2023 and to potentially tap into the larger US market.

From a market perspective, this deal could enhance The9's valuation due to the diversification of its portfolio and the potential for cross-industry innovation. The introduction of AI and big data into legal services is a transformative trend and The9's investment in a leading platform like Fazhidao, with a significant number of paid subscribers and a robust AI model, could signal a strategic pivot towards high-growth sectors.

Financial Analyst

The financial terms of the deal, involving both cash and stock considerations, are notable for their structure, which includes performance-based unlocking of restricted shares. This could indicate a strong confidence in Fazhidao's future performance and market potential. The valuation of Fazhidao at 7 times its audited annual profit after tax suggests a bullish outlook on its profitability and growth trajectory.

Investors should closely monitor the performance metrics tied to the release of restricted shares, such as The9's market capitalization milestones and Fazhidao's potential IPO. These events could significantly impact The9's liquidity and earnings per share, depending on how the integration of Fazhidao's technology and expansion plans unfold.

Legal Technology Expert

The emphasis on Fazhidao's AI-driven SaaS legal platform highlights the increasing importance of legal technology in improving access to legal services. The use of Generative Pre-trained Transformers (Gpt) in legal advice is particularly innovative, as it leverages machine learning to provide tailored solutions and risk management for a variety of legal issues faced by enterprises and individuals.

The protection of customer information and the platform's ability to handle a high volume of daily consultations are critical in the legal services industry, where confidentiality and reliability are paramount. Fazhidao's proprietary technology, evidenced by its 52 software invention patents, copyrights and trademarks, could set a new standard in the legal tech space and provide a competitive edge in both the Chinese and global markets.

SHANGHAI, Feb. 21, 2024 /PRNewswire/ -- The9 Limited (Nasdaq: NCTY) ("The9"), an established Internet company, today announced that it signed a legally binding term sheet (the "Term Sheet") with Zhejiang Fazhidao Information Technology Co., Ltd. ("Fazhidao") to purchase 19% shares of Fazhidao by cash and issuance of The9's restricted shares. The9 is also granted a purchase option to purchase up to 51% of the total shares of Fazhidao, based on a valuation calculated as 7 times of Fazhidao's audited annual profit after tax, provided that such valuation should be higher than a pre-agreed valuation.

Established in 2019, Fazhidao owns and operates 365LAWHELP.COM and mobile app FaBaoWang, a leading artificial intelligence (AI) Software as a service (SaaS) legal service platform in China. It has more than 120,000 cumulative paid subscribers from large companies to micro companies and individuals. The gross sales were over US$50 million in 2023. 365LAWHELP.COM has provided more than 100 million times services to customers cumulatively. It has created large-scale AI legal models based on 13 billion model parameters, collecting historical legal service interactive data with the dynamic growth of more than 100,000 new consultation conversations data used for machine learning every day. Daily service data feeds back to the large-scale AI legal model at the same time, continuously improving the service quality.

365LAWHELP.COM develops AI legal Generative Pre-trained Transformer (Gpt) which provides the legal advice that complies with the laws and regulations based the platform's real-time data. Based on database cases and AI model calculations, precaution measures and potential solutions are provided. Also future event development is predicted for customers to plan in advance develop forecasts and feasibility plans. The platform also provides the highest level of confidentiality for all customers' information. The services offered include professional online legal consultation, one-stop enterprise-specific compliance services, tax consulting services, contract customization and review, electronic signatures, contract template download, legal letter submission, litigation document drafting and risk management and control solutions for enterprises' modules including human resources, finance, administration and intellectual property.

Pursuant to the Term Sheet, The9 will pay cash consideration of US$1 million and will issue restricted Class A ordinary shares to Fazhidao with the value of US$14.2 million. The value of each share will be determined by the average closing price of The9 ADS 20 trading days prior to the signing of the definitive agreement. A portion of restricted shares will be released from lock-up when the market capitalization of The9 will reach US$200 million, US$500 million and US$1 billion respectively. The rest of the restricted shares shall be released from the lock-up when either of the following conditions are met: Fazhidao completes a qualified IPO and its shares owned by The9 become freely tradable in the open market; or if and when the The9 exercises its purchase option and, as a result, holds a minimum 51% of the then total share capital of Fazhidao. Fazhidao may undergo certain restructuring to facilitate these conditions.

"We are the leading AI SaaS legal service platform in China. We are the pioneer in this industry to use AI and industry big data to address the legal needs for enterprises effectively and efficiently. With the storage of substantial volume of industry data and by leveraging AI legal models to support its legal technology services, our AI platform has becoming more and more powerful to provide our customers with convenient and professional services. Our proprietary AI SaaS legal technology has already obtained 52 Software invention patents, copyrights and trademarks in China. There are more than 50 million companies in China. Majority of these are micro companies without in-house legal counsel. In 2023, the legal service market in China was approximately US$40 billion. There is a big room for us to increase our paid subscribers in China to 1 million in 3 years. The legal service market in the U.S. is even much bigger, being approximately US$300 billion in 2023. We observed there are several AI legal platforms in the U.S. with shorter history than us and doing very well in the U.S. With the investment from The9, we are going to strengthen our proprietary development ability and we are confident to safeguard our leading position in China and seek for global expansion in future. Our vision is to use AI legal technology to serve the billion individual and corporate markets in China and the U.S. through continued and focused AI legal technology improvement, and to deliver efficient, professional and affordable AI legal solutions. Everyone will no longer have legal troubles," said Mr. Junkai Li, founder and CEO of Fazhidao.

"We believe AI technology and application will bring revolutionary changes to almost every industry in the World. Therefore huge market opportunities will be created for many industries. This investment is part of The9's overall strategy to start with AI application business, including integrating AI technology into our business, partnering with other AI companies and investing and acquiring innovators who have developed their own AI applications," said Mr. George Lai, CFO and Director of The9.

Safe Harbor Statement

This current report contains forward-looking statements. These statements are made under the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond The9's control. The9 may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission ("SEC"), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about The9's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: The9's goal and strategies; The9's expansion plans; The9's future business development, financial condition and results of operations; The9's expectations regarding demand for, and market acceptance of, its products and services; The9's expectations regarding keeping and strengthening its relationships with business partners it collaborates with; general economic and business conditions; and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks is included in The9's filings with the SEC. All information provided in this current report is as of the date hereof, and The9 does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

The9 Limited
17 Floor,
No. 130, Wu Song Road,
Hong Kou District,
Shanghai 200080, PRC

About The9 Limited 

The9 Limited (The9) is an Internet company listed on Nasdaq in 2004. The9 aims to become a global diversified high-tech Internet company, and is engaged in blockchain business including the operation of cryptocurrency mining. The9 is also stepping into AI application business in different industries.

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SOURCE The9 Limited

FAQ

What percentage of Fazhidao shares is The9 acquiring?

The9 is acquiring 19% shares of Fazhidao with a purchase option for up to 51% shares.

What were Fazhidao's gross sales in 2023?

Fazhidao's gross sales exceeded US$50 million in 2023.

What services does 365LAWHELP.COM offer?

365LAWHELP.COM offers professional online legal consultation, compliance services, tax consulting, contract customization, electronic signatures, and more.

How will the value of The9's restricted shares be determined?

The value of The9's restricted shares will be determined by the average closing price of The9 ADS 20 trading days prior to the signing of the definitive agreement.

What is Fazhidao's vision for the future?

Fazhidao aims to use AI legal technology to serve the billion individual and corporate markets in China and the U.S., delivering efficient and affordable legal solutions.