Flipkart, Myntra merge in RS.2k cr deal
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Biggest M&A In India's E-Commerce Story | Combined Entity To Take On Amazon
Two of India's biggest
e-commerce companies, Flipkart and Myntra, have merged to create an
entity with annualized sales of $1.5 billion, bringing them closer and
in some cases rivalling the much older offline retailers of those like
Future Group, Aditya Birla, and Reliance.
Their combined might also
places them in a better position to take on the likes of Amazon, which
has become increasingly aggressive in India's booming etailing market.
The deal was influenced by two large common shareholders, Tiger Global and Accel Partners.
Flipkart and Myntra did not disclose the details of the deal, but analysts estimate that Myntra has been valued at about Rs 2,000 crore ($330 million). The impending deal was first reported by TOI in January this year. 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, again a story which first broke on this newspaper in June last year.
“We want to be a leader in every category that we are present in. Fashion is definitely the category of the future and we want to be the biggest players in this space,“ said Sachin Bansal, who co-founded Flipkart with Binny Bansal. This acquisition of Myntra, involving a complicated share-swap process, also values Flipkart at over $2 billion, possibly the first venture-funded Indian startup to cross that figure. Two other Bangalore-born peers, Mu Sigma and InMobi, have been eyeing similar valuations as they explore fresh fund raising or listing plans in the near future.
While Flipkart is into a number of categories, Myntra is focused on fashion e-tailing. With Myntra's share of 30% of online fashion sales, Flipkart now has a 50% share in a segment that's clocking nearly 100% annualized growth. With this deal, Flipkart effectively has stolen the thunder from Gurgaon-based Snapdeal, which was looking to be the first e-tailer in India to cross Rs 1,000 crore in fashion sales by the end of this year.
As part of the acquisition, Myntra co-founder Mukesh Bansal will join Flipkart's board and will also oversee Flipkart's fashion business. Flipkart and Myntra will remain as two separate entities, but people holding stock options in Myntra will now hold the same in Flipkart. “We will retain the same management team at Myntra. Neither employee roles nor the company's road map will change. The idea is to maintain distance between the two businesses and preserve a unique culture,“ said Mukesh Bansal. “Both companies are running at a very fast speed and winning on the competitive landscape. So we don't want to change that at all,“ he added.
Flipkart's acquisition of Myntra is also a great story of two IITians, both Bansals, in their early thirties buying a crosstown rival founded and run by another IITian and another Bansal in his thirties, to create a single entity that accounts for 50% of sales of the e-tailing industry.
However, the deal making wasn't a smooth road as legal due diligence involving a plethora of foreign investors with different domiciles threatened it at various stages. In fact, Myntra went to on raise a $50 million round from PremjiInvest and others even as it had the Flipkart offer on the table. Myntra continued to engage with newer investors for additional funds until the transaction details fell in place in early April. Its CEO Mukesh Bansal first hinted at the possibility of deal with Flipkart in an interview to TOI on April 7.
Sandeep Ladda, India technology leader at consultancy firm PwC India, said the merger represented a process of consolidation in the sector. “Only the niche players or those with good financial muscle would be able to survive, while the rest would look for acquisitions or being taken over,“ he said. Mukesh Bansal's family in Haridwar was in the business of clothes trading, but his father chose to pursue a career in the public sector. Mukesh did computer science at IIT, Kanpur, worked briefly at Deloitte Consulting and then the family's business blood kicked in and he became part of entrepreneurial ventures in the US. He returned to India to found Myntra in 2007.
In an interview to TOI, Mukesh, together with Flipkart's Sachin and Binny Bansal, talks about why Myntra's merger with Flipkart would be a game changer for India's ecommerce industry .
Excerpts: How did the initial camaraderie translate into a business deal?
Sachin: We have known Mukesh since 2007, when we were both tiny start-ups in Bangalore. Both of us were trying to make a difference in the internet space in India. We learnt our first supply chain scaling lessons from Myntra. It is a leader in fashion today and we would love to learn more from Myntra and Mukesh.
Mukesh: In the last few months, I have spent a lot of time with Sachin and Binny and I was convinced that if we come together and work as a single entity , it will be a gamechanging equation in the Indian e-commerce space. It was also important to us that Myntra continues to run as a separate business entity -that's a big part of how we have constructed this merger. I see myself here for many years continuing to build the business.
Did it impact you (Mukesh) as an entrepreneur?
Mukesh: As an entrepreneur, I thought about how to get the best possible returns to the shareholders. We have a stock option plan for all employees. It allows all employ ees to also be a part of a larger story with a great learning opportunity .
Was Amazon's aggressive expansion a trigger for the deal?
Sachin: Back in 2008, Amazon was the most dominant player in the world. But we believe India is different and we are going to build the business in a different way . Our role model is Alibaba (in China) more than Amazon. It's a better model for India because the market and customers are similar, their income levels and thought processes are similar too. We are looking to apply the learnings from the Chinese e-commerce story in India. Alibaba's CEO Jack Ma is our inspiration.
There is a lot of skepticism about e-commerce ventures becoming profitable?
Sachin: We can all turn profitable tomorrow. The e-commerce market was $3 billion last year, and there is a lot of headroom for growth. We can stop investing in our supply chain and technology and start becoming profitable today. But I believe that would be a wrong strategy to take right now. We are in a dominant position, we should continue to grow the market and invest ahead of the curve.
Is an IPO imminent?
Binny: IPO is definitely on the cards. We want to be a public company , but it's not top of the mind. Right now, we want to build the right business with the right financial metrics and market leadership.
The deal was influenced by two large common shareholders, Tiger Global and Accel Partners.
Flipkart and Myntra did not disclose the details of the deal, but analysts estimate that Myntra has been valued at about Rs 2,000 crore ($330 million). The impending deal was first reported by TOI in January this year. 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, again a story which first broke on this newspaper in June last year.
“We want to be a leader in every category that we are present in. Fashion is definitely the category of the future and we want to be the biggest players in this space,“ said Sachin Bansal, who co-founded Flipkart with Binny Bansal. This acquisition of Myntra, involving a complicated share-swap process, also values Flipkart at over $2 billion, possibly the first venture-funded Indian startup to cross that figure. Two other Bangalore-born peers, Mu Sigma and InMobi, have been eyeing similar valuations as they explore fresh fund raising or listing plans in the near future.
While Flipkart is into a number of categories, Myntra is focused on fashion e-tailing. With Myntra's share of 30% of online fashion sales, Flipkart now has a 50% share in a segment that's clocking nearly 100% annualized growth. With this deal, Flipkart effectively has stolen the thunder from Gurgaon-based Snapdeal, which was looking to be the first e-tailer in India to cross Rs 1,000 crore in fashion sales by the end of this year.
As part of the acquisition, Myntra co-founder Mukesh Bansal will join Flipkart's board and will also oversee Flipkart's fashion business. Flipkart and Myntra will remain as two separate entities, but people holding stock options in Myntra will now hold the same in Flipkart. “We will retain the same management team at Myntra. Neither employee roles nor the company's road map will change. The idea is to maintain distance between the two businesses and preserve a unique culture,“ said Mukesh Bansal. “Both companies are running at a very fast speed and winning on the competitive landscape. So we don't want to change that at all,“ he added.
Flipkart's acquisition of Myntra is also a great story of two IITians, both Bansals, in their early thirties buying a crosstown rival founded and run by another IITian and another Bansal in his thirties, to create a single entity that accounts for 50% of sales of the e-tailing industry.
However, the deal making wasn't a smooth road as legal due diligence involving a plethora of foreign investors with different domiciles threatened it at various stages. In fact, Myntra went to on raise a $50 million round from PremjiInvest and others even as it had the Flipkart offer on the table. Myntra continued to engage with newer investors for additional funds until the transaction details fell in place in early April. Its CEO Mukesh Bansal first hinted at the possibility of deal with Flipkart in an interview to TOI on April 7.
Sandeep Ladda, India technology leader at consultancy firm PwC India, said the merger represented a process of consolidation in the sector. “Only the niche players or those with good financial muscle would be able to survive, while the rest would look for acquisitions or being taken over,“ he said. Mukesh Bansal's family in Haridwar was in the business of clothes trading, but his father chose to pursue a career in the public sector. Mukesh did computer science at IIT, Kanpur, worked briefly at Deloitte Consulting and then the family's business blood kicked in and he became part of entrepreneurial ventures in the US. He returned to India to found Myntra in 2007.
In an interview to TOI, Mukesh, together with Flipkart's Sachin and Binny Bansal, talks about why Myntra's merger with Flipkart would be a game changer for India's ecommerce industry .
Excerpts: How did the initial camaraderie translate into a business deal?
Sachin: We have known Mukesh since 2007, when we were both tiny start-ups in Bangalore. Both of us were trying to make a difference in the internet space in India. We learnt our first supply chain scaling lessons from Myntra. It is a leader in fashion today and we would love to learn more from Myntra and Mukesh.
Mukesh: In the last few months, I have spent a lot of time with Sachin and Binny and I was convinced that if we come together and work as a single entity , it will be a gamechanging equation in the Indian e-commerce space. It was also important to us that Myntra continues to run as a separate business entity -that's a big part of how we have constructed this merger. I see myself here for many years continuing to build the business.
Did it impact you (Mukesh) as an entrepreneur?
Mukesh: As an entrepreneur, I thought about how to get the best possible returns to the shareholders. We have a stock option plan for all employees. It allows all employ ees to also be a part of a larger story with a great learning opportunity .
Was Amazon's aggressive expansion a trigger for the deal?
Sachin: Back in 2008, Amazon was the most dominant player in the world. But we believe India is different and we are going to build the business in a different way . Our role model is Alibaba (in China) more than Amazon. It's a better model for India because the market and customers are similar, their income levels and thought processes are similar too. We are looking to apply the learnings from the Chinese e-commerce story in India. Alibaba's CEO Jack Ma is our inspiration.
There is a lot of skepticism about e-commerce ventures becoming profitable?
Sachin: We can all turn profitable tomorrow. The e-commerce market was $3 billion last year, and there is a lot of headroom for growth. We can stop investing in our supply chain and technology and start becoming profitable today. But I believe that would be a wrong strategy to take right now. We are in a dominant position, we should continue to grow the market and invest ahead of the curve.
Is an IPO imminent?
Binny: IPO is definitely on the cards. We want to be a public company , but it's not top of the mind. Right now, we want to build the right business with the right financial metrics and market leadership.
