A Deal On The Flip Side

Snapdeal, a sinking ship, will soon be bought over by Flipkart, but only for the sake of investors, not assets

- Arindam Mukherjee

IN a little over a year ago, the promoters of Flipkart and Snapdeal were engaged in a war of words over who will be a greater force in the fast growing Indian e-commerce market. One year and a lot of ‘Amazon-forced’ developments later, Flipkart is on the verge of devouring Snapdeal in a deal forced not by competition or organic growth but by investors looking at justifying their investments in the e-commerce market.

In the last few weeks, the decks have been cleared for Flipkart’s takeover of arch rival and fellow e-commerce major Snapdeal which has been sinking over the last year or so with sales slumping and Gross Merchandise Value (GMV), the primary measuring tool of an e-commerce company’s success, going down significantly. Not only has it not been able to match Flipkart’s growth, it has also become difficult for the beleaguered company to raise any more funds from investors, who are now looking for returns on their investment. In April, it reduced office space by 60 per cent. A couple of months earlier, it resorted to a massive downsizing to reduce costs and has been a low hanging fruit for acquisition.

But is there any value that anyone can derive from Snapdeal’s acquisition? Will Flipkart gain anything tangible as a company by acquiring a sinking ship?

Apparently, not. Experts and analysts across the spectrum feel that unlike Flipkart’s other acquisitions, such as Myntra, which have added value or products to the company’s portfolio, the Snapdeal takeover may not add any value to Flipkart as a company. That is because both the companies were in similar lines of business and Snapdeal is unlikely to bring in any assets to Flipkart. “This is not one of those strategic business mergers,” says retail expert and Technopak CMD, Arvind Singhal. “This is a financial merger forced by investors to salvage their investment in Snapdeal,” he says.