In March 2017, IOS cautioned etailers about Flipkart’s plan to grab eBay India along with $2 billion. After a brief update a week back, it is now official that the Indian ecommerce leader has not only acquired eBay’s India business but also raised $1.4 billion.
Tencent Holdings Ltd, eBay Inc. and Microsoft Corporation collectively injected $1.4 billion into Flipkart at a valuation of $11.6 billion. As per the deal, eBay has made the cash investment in exchange for an equity stake in Flipkart and has also sold its India business to the ecommerce biggie.
Co-founders Sachin and Binny Bansal shared,
“We are delighted that Tencent, eBay and Microsoft — all innovation powerhouses — have chosen to partner with us on their India journey. We have chosen these partners based on their long histories of pioneering industries, and the unique expertise and insights each of them bring to Flipkart. This deal reaffirms our resolve to hasten the transformation of commerce in India through technology.”
What’s in for investors?
With this investment, the Chinese internet service firm Tencent is looking to explore India’s digital payments and ecommerce space. And eBay is positive that Flipkart’s local appeal combined with its own global expertise would lead to success.
Devin Wenig, President and CEO of eBay Inc asserted,
“The combination of eBay’s position as a leading global e-commerce company and Flipkart’s market stature will allow us to accelerate and maximize the opportunity for both companies in India.”
Strategic partnership to dethrone Amazon
Sachin Bansal has been harping about ‘selective globalisation’ and the need for level-playing field in Indian ecommerce industry. This of course is directed towards the growing popularity and market share of Amazon India.
Late entrant in the Indian ecommerce space, the US-based ecommerce giant Amazon managed to beat the home-grown players Flipkart & Snapdeal and global competitor eBay. Industry watchers predicted that to defeat Amazon, other players would have to come together.
With the acquisition of eBay, the prediction is turning out to be true.
Stressing on the ‘home-grown’ card, the Bansals said,
“This is a landmark deal for Flipkart and for India as it endorses our tech prowess, our innovative mindset and the potential we have to disrupt traditional markets. It is a resounding acknowledgement that the home-grown tech ecosystem is indeed thriving and succeeding in solving genuine problems in people’s daily lives across all of India.”
As we know, acquisition talks are on with Snapdeal as well, which may materialize in the next few weeks. Buzz is that Flipkart is in the line to receive an additional $500 million, once the Snapdeal deal is signed.
“Once the Snapdeal acquisition comes through, SoftBank, the online retailer’s largest shareholder may put $500 million in Flipkart as primary money besides buying secondary shares from Tiger Global,” a source revealed.
What’s with acquiring ‘companies in distress’ syndrome?
Acquiring eBay does qualify as a ‘landmark deal’. So was buying Jabong. But the common factor between both these companies was their poor financial health. Neither Jabong was doing well when it was acquired by Flipkart, nor eBay.
Many questioned Flipkart’s motive behind buying a start-up, which was under scrutiny for corporate governance violations. The aim seems to be that Flipkart wants to corner Amazon by setting up an army of ecommerce-focused companies. It has Myntra, Jabong, eBay, PhonePe, Ekart, tech unit, and advertising unit under its umbrella.
Industry experts believe that the last two mergers (Snapdeal and eBay) are not only bad deals but also makes Flipkart appear like a ‘bad loser’ desperate to win. Strategic partnership with Myntra made sense. But there’s little to gain from buying the marketplaces as Flipkart already has what the acquired companies could offer.
Therefore, in the times when funds are rare to come by, Flipkart splurging on loss-making firms doesn’t make sense. Merging with rivals just to isolate Amazon – how smart or wise is this? And would acquiring loss-making companies help to defeat Amazon?