The due diligence process is underway and Snapdeal is expected to take a call on the acquisition over the next few weeks.
After the mega Walmart-Flipkart deal last year, India's booming e-commerce landscape is gearing up for another acquisition. The buzz is that Gurugram-based Snapdeal, reportedly the fourth-largest player in the business, is close to finalising talks to acquire its nearest rival ShopClues and has already started the due diligence process.
The all-stock deal, expected to be pegged around $200-250 million, will give an exit to ShopClues' investors, including Singapore's sovereign wealth fund GIC, Helion Venture Partners, Tiger Global, Nexus Venture Partners and Unilazer Ventures.
Sources in the know told The Economic Times that the deal was likely to see the above investors get one Snapdeal share for every nine they hold if the merger went through as planned, and would give them a 10% stake in the combined entity. "The ask from Shopclues is to get at least a 30% stake in Snapdeal as part of the transaction," they added. The management and founders, Radhika Aggarwal and Sanjay Sethi, may also "get a small cash exit".
This development comes at a time Snapdeal has charted an impressive turnaround from its existential crisis in 2017, back when it was embroiled in protracted and ultimately unsuccessful merger talks with Flipkart. As the startup's CEO and co-founder Kunal Bahl stated in a LinkedIn post last year, "This was an M&A process that had dragged on for more than half a year without an end in sight, with many discords outstanding, while at the same time, the business was losing money and cash reserves were depleting fast. We were going to fall off a cliff if a call was not taken immediately to continue to build the business."
The board's decision to stick it out as an independent company, but with a reshaped business model, christened Snapdeal 2.0, paid off. The company has managed to bring down its consolidated loss by a whopping 87%, from Rs 4,647.1 crore in FY17 to Rs 613 crore in the following fiscal. Snapdeal turned cash flow positive in June 2018. It has also been steadily increasing its order numbers, now in the 2.5 lakh per day range from a low of 30,000-40,000 daily during its crisis phase. However, it still can't hold a candle to the biggies in the business - Amazon and Flipkart typically rack up 6 lakh orders daily.
In comparison, players in the ecommerce logistics space reportedly claim that ShopClues is hardly executing any orders presently. Although the company, registered as Clues Network, has managed to narrow its losses, its shrinking business over the past year has relegated it to the fifth rank on the gross merchandise value, or GMV, chart. ShopClues spokesperson told the daily that the company's losses have come down sharply from Rs 210 crore in FY18 to under Rs 45 crore in the year ended March.
If things go to plan, the Snapdeal-ShopClues deal will herald a big consolidation move in the long-tail ecommerce market, which caters to small towns and focuses on low-prices products - typically in the Rs 500-1,000 range.
"Snapdeal and Shopclues are trying to make a business in the long-tail category by selling items below Rs 900-1,000 with no promise of next-day delivery. This allowed them to tap into first time online buyers in tiers II and beyond cities in the past," Satish Meena, senior forecast analyst at research firm Forrester Research, told the daily.
Significantly, market leaders Amazon and Flipkart had hitherto stayed away from these markets, giving Snapdeal and ShopClues, to an extent, an edge. But the first-mover advantage may not last much longer with Amazon's focus now shifting beyond metropolitan areas and tier II cities. So the acquisition will help Snapdeal compete more aggressively with the biggies
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