As cash returns to India’s startup sector, so have the rumours of impending mergers and acquisitions.
After a lull for nearly two years, 2017 has been great for Indian internet companies in terms of funding. During January-June 2017, the total funds raised by Indian technology startups were $6.4 billion, way higher than just $2.4 billion in the corresponding period last year.
Two of the country’s largest internet ventures, Flipkart and Paytm, have raised upwards of a billion dollars each this year, and are now reportedly out in the market scouting for potential buyout candidates to beef up their businesses. Rumours also abound over Amazon India eyeing acquisitions.
In all, there are currently at least nine acquisitions in the making, according to recent news reports.
“What companies are trying to do is consolidate the space, as well as get into all adjacent industries, and this trend is driven by the additional funds these companies have raised”, said Harish HV, a partner at professional services firm Grant Thornton India.
What’s the buzz
There is a lot of conjecture currently circulating through the startup ecosystem. For instance, according to several source-based reports, Flipkart, which raised $4 billion over two rounds of funding this year, is looking at a slew of companies that it could buy:
- On Oct. 15, the Mint newspaper reported that Flipkart was in talks to buy a minority stake in ticketing portal BookMyShow, valuing the latter at between $500 million and $700 million.
- On Oct. 18, The Economic Times reported that Flipkart had begun “exploratory discussions” to pick up a stake of between 8% and 10% in Lifestyle Fashion, the listed fashion arm of Kishore Biyani’s Future Group.
- On Oct. 23, Mint also said the company was in talks with food-delivery startup Swiggy, hyperlocal services firm UrbanClap, and furniture retailer Urban Ladder. Flipkart, the report said, was also eyeing firms in the insurance and wealth management spaces.
- On Nov. 09, The Economic Times said Flipkart had initiated talks with online furniture marketplace Pepperfry for a strategic investment.
Meanwhile, rival Amazon, which in 2016 committed an investment of $3 billion into India, is also on the look out. In June, Bloomberg reported that the India arm of the American e-commerce major was in talks to buy BigBasket to boost its presence in the fast-growing online grocery segment.
Alibaba-backed Paytm, too, is eyeing two acquisitions. On Nov. 13, The Times of India reported that the homegrown digital payments major was looking to buy daily deals startups Nearbuy (formerly Groupon India) and Little. The Vijay Shekhar Sharma-led company had raised $1.4 billion in May from Japanese telecom and internet giant Softbank.
And Alibaba Group has itself sought approval of the Competition Commission of India to acquire a stake in BigBasket, according to a Nov. 13 report by the Press Trust of India.
Emails to Flipkart, Paytm, Urbanclap, Swiggy, BigBasket, Nearbuy, and Little did not elicit responses. Pepperfry and Amazon India said they do not respond to rumours and speculations. “There is absolutely no truth to this rumour. There is no such deal or talks in the works”, Urban Ladder said about the Mint report.
Why acquire?
Tongues are also wagging because an acquisition can potentially give Flipkart an edge over Amazon India-it is, after all, the most epic contest in the Indian internet businesses space. Even if in a non-core segment, picking up a sector leader like Swiggy or Urban Ladder could give the e-commerce major a strong foothold in a new vertical.
It’s worth remembering that acquisitions are how Flipkart won over Amazon India in the high-margin fashion e-tail segment. Along with its two buyouts-Myntra and Jabong-the company now controls nearly 70% of the segment.
“Flipkart is facing a challenge from Amazon so they have a strong reason why they should look at acquisitions”, said Yugal Joshi, practice director at Texas-headquartered consulting firm Everest Group. “They have to add to their competence and market presence and taking the inorganic route could be great for scaling up quickly.”
But which of these deals will finally work out? “…we don’t know. But I’m sure rumours have some basis to it. There will be some amount of discussion of some of these”, Harish said. “With deals, of course, out of three to four attempted, only one goes through typically.”
