The article is written by Nilesh Kumar, a student of UPES, Dehradun
The prodigious Indian e-commerce wedding we’ve all been hearing about for long is done. Two of India’s biggest e-commerce companies Flipkart and Myntra have merged creating an entity with annualized sale of $ 1.5 billion.
This is the biggest M&A deal in India’s e-commerce story to date, surpassing the $100 million that the Ibibo Group spent to buy RedBus, a story which first broke on this news in June last year. The transaction is supposedly initiated by the common investors Tiger Global Management and Accel Partners.
|Net Sales||$ 1.2 billion||$ 300 million||$ 1.5 billion|
|Registered Users||18 million||8 million||26 million|
|Daily Visits||3.5 million||1.7 million||5.2 million|
|Sellers on Platform||3,000||100||3,100 sellers|
|Team Strength||10,000||2,000||12,000 members|
Source: Times of India
The details of the deal between Flipkart and Myntra have not been disclosed but analysts estimates that Myntra has been valued at around Rs. 2,000 crores ($ 330 million) conducting.
The Legal Direction
Nishith Desai and Associates, one if the leading corporate law firms in India heads the advisory body for Flipkart for the merger with Myntra the same for Myntra is Indus Law.
NDA’s M&A and TMT partner Vaibhav Parikh and lawyers Arun Scaria and Sangeeta Rana acted for Flipkart on India’s largest e-commerce deal ever.
The notions behind the merger between are
- Flipkart has planned to extend its offering in apparel because fashion is the only category which successfully conveys an operating margin of over 30%, and hence is one of the most lucrative.
- Myntra has developed its expertise and leadership in the category since its inception whereas Flipkart entered the category only in 2012, consequently, the merger will aid Flipkart ripen its fashion portal.
- The move comes from Flipkart as it faces tough competition from rivals like eBay, Snapdeal and especially Amazon
- Myntra aims to become approximately a US $ 2,800 million in the domain of fashion by the year 2020. To reach its target, the company needs further funding of around US $100-150 million. Flipkart has agreed to pump in this extra amount once the merger is finalized.
- Flipkart and Myntra together will be able to form the biggest online retail company in India, thus helping to build a strong front against international leaders such as Amazon and eBay.
Hence, the merger is more symbiotic in nature than just one company helping another. Both companies are positioned to benefit hugely from this partnership.
Even after the merger, both the entities will exert as independent units with no change in the structure, employees and functioning of the companies. Flipkart will invest US $ 100 million in its fashion business prior to the merger.
“We hope to take this figure to about 60-70 per cent in the long-term,” said Flipchart’s CEO Mr. Sachin Bansal. He added that Flipkart would invest $100 million in its own fashion vertical in the near-term. While the electronics vertical is the largest revenue generator at Flipkart (and will continue to be even after the acquisition), Mr. Bansal hoped that in the near-term fashion would be the “largest sales category for Flipkart”. Flipkart started fashion as a shopping category on its site two years ago.
Jabong, rival to Myntra has ruled out all speculations about its schemes on merger and professed that their favored way of mounting would be through public listings.
How will the smaller players be wedged?
If an organization has a sustainable business model and a passionate team they can survive. It all depends on how smaller organizations now manage their teams and business. However competitors like Jabong, Yebhi, Yepme and Homeshop18 will have to come up with different strategies to make their business viable.
With the new government probable to allow foreign direct investment in e-commerce, competition is only expected to grow and this could prompt further consolidation. In such a scenario, will Amazon look at any acquisition in India is a major question. Without denying that, Agarwal said, “We are excited by the current focus. Anything outside of that, we don’t want to speculate on.” The two Bansals of Flipkart and Myntra have maintained they are open to strategic partnerships and acquisitions whenever there’s opportunity.