Gaopeng has faced stiff competition in China where the daily-deals sector has thousands of competitors and it laid off workers last year to cut underperformers.
The company said in a statement late on Tuesday it will merge with lifestyle daily-deals website, FTuan, which is also backed by Tencent. Groupon will be a minority shareholder in the new company, as it is in Gaopeng. Financial terms of the deal were not disclosed.
The new company will be managed by senior executives from FTuan and Gaopeng and will maintain separate brands.
At the end of last year, Gaopeng only had a small portion of the market as gauged by unique visitors compared to market leaders Lashou and Meituan, according to data from research firm Analysys International.
China's group buying industry was worth 1.73 billion yuan ($271.89 million) in the first quarter this year, according to Beijing research firm iResearch.
($1 = 6.3629 Chinese yuan)
Reporting by Melanie Lee; Editing by Matt Driskill