Could Flipkart-Snapdeal, Paytm-Frecharge merger be game changer for Indian ecommerce?

Editor | Sep 10, 2020

IOS had predicted that consolidation would be one of the top ecommerce trends in 2016. In 2017, the trend still continues to stay relevant as top Indian ecommerce firms get ready for their respective mergers.  

In the last few years, tertiary companies and ecommerce-centric firms were being acquired by the big ecommerce players. For example: Flipkart acquired fashion etailer Jabong in July 2016 or Snapdeal bought digital payments firm Freecharge.

But in 2017, top online marketplaces are consolidating. For instance: Flipkart took over eBay India in April 2017. If all goes well, then two more mergers are in the line to be finalized soon.

All clear for Snapdeal merger with Flipkart?

According to people close to the Flipkart-Snapdeal merger talks, early-stage investors and co-founders have finally given their approval. As IOS reported earlier, the consent of Nexus Capital was pending. But now all the decision-makers have agreed to the marketplace sale to ecommerce leader Flipkart.

Buzz is that Flipkart would pay $1 billion to acquire Snapdeal in an all-stock deal. And that the co-founders Kunal Bahl and Rohit Bansal would get $15 million each. It is still not the final offer as Nexus and Kalaari Capital are looking to sell Snapdeal at a much higher valuation. But looking at Softbank’s losses due to its India investments including the Bahl-led company, Flipkart might not up its offer price.

While all the concerned parties have verbally agreed and an unofficial offer has been made, everyone is waiting for the due diligence process to commence. Snapdeal’s business would be appraised by people appointed by Flipkart to evaluate its commercial potential and determine assets & liabilities.

Another interesting piece of information is that after merging with Flipkart, Snapdeal co-founders Bahl and Bansal would resign from their positions and would not be part of the new entity in any capacity.

“Both founders will not be part of the merged entity in any capacity, post the acquisition of the company by Flipkart,” an insider revealed.

In the interim, Paytm is ready to buy Freecharge

A lot has changed since the news broke out that Mobikwik is going to acquire Freecharge. As per fresh reports, it is Paytm and not Mobikwik that is going to buy Snapdeal’s digital payments arm Freecharge.

The Alibaba-backed company Paytm has entered into an inoperative agreement with the e-wallet firm to buy it at a valuation of $50-90 million.

As reported earlier, Snapdeal’s top investor Softbank is looking to invest $1 billion in Paytm to gain more control. If the online marketplace ends up buying Freecharge as well, then Softbank would be able to execute its exit plan smoothly.

An insider disclosed,

“The funding deal with SoftBank for Paytm does not have Freecharge as a rider but if Paytm is satisfied with the due diligence it will likely agree to buy Freecharge since the price has come down drastically.”

A grand consolidation on the cards for Indian ecommerce

If both the above mentioned mergers materialize, then it would possibly be one of the biggest game changers for the ecommerce industry in India.

Experts believe that consolidation of big players would help to get better funding deals and reduce cash burn rate of the industry. Focus would shift on long-term growth and sustainable business models rather than pouring money on acquiring new customers at any cost.

Haresh Chawla, Partner at True North stated,

“Consolidation was bound to happen because the game was so shallow and you needed hands with permanent capital on your balance sheet. Now, what has happened is the player with the better model has been able to get permanent capital on their balance sheet, which is Flipkart and Amazon.”

So very soon the Indian ecommerce battle would be between Amazon, Flipkart and Alibaba. It would be interesting to see how that pans out.

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Editor team is specialized in introducing the marketplace content targeting the Indian online sellers. They plan and coordinate to bring the appealing content for the small businesses on how to partner with the e-commerce sites like Amazon and Flipkart and strategies for improving their online business. 

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