In the past week, Snapdeal has dominated the business news in India, owing to speculations that it is ‘being readied’ to be sold off to its arch-rival Flipkart. While no official announcement has been made yet, officials privy to the deal are claiming that the tussle between the board of directors, which includes SoftBank, Kalaari Capital and Nexus Ventures, is the prime reason for the impending sale.
Snapdeal has been a loss-making entity, but it has continued to receive financial support from venture capitalists. However, considering its declining share of the Indian e-commerce sector – it has given its no.2 spot to Amazon – SoftBank, the largest investor is looking to sell off the entity to Flipkart. Such a move is expected to boost the valuation of Snapdeal, and reduce the time by which it turns profitable.
Officials close to the deal say that at the core of the matter is a term sheet that was withdrawn by SoftBank without taking the other board members into confidence. Earlier, in December, when SoftBank mooted $50 million monthly investment, Kalaari and Nexus Ventures turned down the offer, as it would have opened the doors for a potential merger.
Although the key parties are maintaining a stoic silence on the issue, those in the know claim that backdoor negotiations are going on at a frantic pace. There are also reports that the board of directors are softening their stand so that an amicable solution can be reached upon. There are also rumors that as per the new plan, Snapdeal shareholders will get one share for every 10 shares owned. It is also speculated that Snapdeal, which was valued at $6.5 billion in 2016, could lose one-sixth of its valuation. In fact, the bone of contention between SoftBank and other two partners was the low market valuation of the company.
The Malaise in Indian e-commerce
The Indian e-commerce sector garnered a lot of media attention and fanfare in the last five years or so. The start-up cult caught up with thousands of millennials, as pocketing a six-figure salary began to be shunned for entrepreneurship. However, as many start-up owners have found, getting funding is only one part of success – maintaining profitability year after year is a more daunting task.
It has been often bemoaned that Indian e-commerce companies have tried to copy the Amazon business model, without understanding the nuances and subtlety that’s unique to the Indian buyer. While Amazon has deeper pockets and is true global conglomerate, its failure to take off in China, where Alibaba reigns supreme, is a case in point for Indian e-commerce start-ups.