Flipkart announced that it is going to buy eBay India which has brought a great turmoil in the market. eBay’s Indian operations will now be handled by Flipkart. This acquisition is considered to be a step to counter its biggest rival Amazon.
Investors supported this deal
Deal of $1.4 billion is driven by Tencent who invested almost $700 million. eBay Inc contributed $500 million whereas it received Flipkart stock of $200 million for its Indian Operations. Microsoft, which as of late consented to an arrangement with Flipkart to make Azure, the etailer’s restrictive open cloud stage, will put in $200 million to round off the arrangement.
Since it has been already revealed that, Flipkart was in converses with raising capital from eBay followed with eBay pitching its local practices to Flipkart. The organization caught a valuation of $11.6 billion which, in spite of the fact that a down round from its prior high of $15.2 billion, concluded for a phase for a possible merger with Snapdeal.
Deal would be landmark
Binny Bansal and Sachin Bansal, founders, talk about the deal and 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”.
Both of them also said that, “It is a resounding acknowledgement that (Indian) tech ecosystem is indeed thriving and succeeding in solving genuine problems in people’s daily lives”.
Flipkart and its rivals
Flipkart has been great at acquiring rivals. It has already taken over Having, Mantra and now has eBay in its bag. This is done to unsettle Amazon, the current rival to Flipkart. If rumours are to be believed, acquisition of Snapdeal would help Flipkart join hands with Japanese investor giant SoftBank.
Flipkart’s Speculators and their rivals
Speculators rushed to perceive the magnitude of the exchange that can possibly reconstruct the online retail industry of India while on the other side Alibaba alongside its installment subsidiary Alipay has risen as the latest contender taking a greater stake in Paytm, an e-commerce online market place.
Vani Kola, managing director of Kalaari which is one of the Snapdeal’s board members said, “Really glad to see the endorsement of the Indian startup ecosystem”.
Valuation of shares of the company
Despite the fact that the present deal denotes a plunge in valuation for Flipkart, it is unreasonably a triumph because as per mutual fund shareholder, shares of the company had been evaluated to as low as $5.6 billion during late 2016.
Valuation correction Vs Demonstration of confidence
The mutual funds like T Rowe and Morgan Stanley hold less than 5% of Flipkart and are assigned with restricted or no information right. Additionally, their role is viewed as global trend though most esteemed companies are facing with a significant low in market shares like Uber or Airbnb.
That’s why Kola said, “I see the valuation correction as minor and demonstrates confidence in the long-term viability.”
Flipkart Vs Amazon
Flipkart has been badly affected since the arrival of Amazon in the Indian market in 2013. Amazon which is now regarded as the second largest e-commerce site has a strong monetary backup and experience. Since then Flipkart has put in a lot of effort to join hands with strategic investors to regain the stronghold it had previously.
Flipkart sold more in Diwali sale
As the discussion of Flipkart with Wal-Mart, America’s biggest retailer, didn’t prompt to desired results instead Flipkart acquired confidence and trust by vanquishing its contender Amazon in yearly sweepstakes especially in Diwali sale where it sold more than $500 million valued stock.
Flipkart can go with bolder wagers and this is what is encouraged by the turnaround that is made by Its CEO Kalyan Krishnamurthy and one of the representatives of Tiger Global, its biggest capitalist, who rejoined in 2016.
Acquisition deal by flipkart
After bagging Jabong in July 2016, Flipkart started talks with eBay during the early 2017. This was followed by Tencent and Microsoft joining the funding rounds.
PhonePe is one of the subsidiaries of digital payments acquired by Flipkart in the year of 2016.
Subrata Mitra who is a partner of capitalist Accel, drove the initial round of fund raising in Flipkart and is serving as its board member since, said, “The kind of money we needed for the next level of growth was probably beyond what a financial investor would be able to contribute. Additionally he said, “Each of these companies has made payment forays directly or indirectly so that will be helpful as we evolve PhonePe.”
Funds acquired by Rival Amazon
Recently Flipkart has raised a total fund of $4.6 billion which is almost equal to funds raised by Amazon i.e. $5 billion. This deals also confirmed the rank of Krishnamurthy in organization who initiated fresh capital gained steam since he became CEO in January.
Softbank’s interest in Flipkart
He is also expected to oversee eBay’s Indian operations. Flipkart which has acquired Jabong and Myntra, has an annual sale of over $4 billion. Flipkart’s latest deal will help it to deal with Softbank, which is firm on selling the stock pinned at $1 billion.
Softbank is also discussing about putting more funds of almost $1-1.5 billion in Flipkart. Eventually this deal would lead to the partial exit of Tiger Global management, which already invested more than $1 billion in Flipkart.
Collabration with eBay
The biggest challenge that lies in front of Flipkart is to successfully collaborate with eBay with which it has an agreement of cross-border trading and to acquire Snapdeal. This transaction could lead to a confrontation among biggest and leading corporations in Indian market place. It should be noted that Amazon is a contender of eBay while Microsoft as well as Tencent rivals Alibaba.
Development in online retail industry including Flipkart
According to a current report of Red Seer, a research firm, in period of January to March of this year, online retail industry developed by 5% to $14.7 billion in comparison of same duration of previous year.
In fact a venture capitalist said,”I am surprised it (Flipkart) is being valued at three times the GMV”. Mohandas Pai who is a chairman of Aarin Capital said that, “This $1.4-billion funding will stop the hegemony of Amazon. However, this further increases doubt about Snapdeal’s future and whether they can raise money, and also puts pressure on other players such as ShopClues, Paytm Mall. There will be keener competition in the market which will be good for customers.”