With fashion on its mind, Flipkart acquires Myntra

Sources say deal valued at Rs 1,800 cr; firms will function as separate entities

The 30-something founder-promoters of Flipkart, Sachin Bansal and Binny Bansal (not related to each other), on Tuesday scripted the biggest consolidation in the Indian e-commerce market, buying out rival company Myntra. The Bansals, who had started as executives in Amazon, before founding Flipkart in 2007, are believed to have opted for the Rs 1,800 crore ($300-million) stock-and-cash deal due to growing competition from the American online major.

The value of the combined entity is pegged at more than $2 billion.

While Flipkart’s Bansals dismissed any threat from Amazon, saying China’s Alibaba was more its kind, Myntra chief executive Mukesh Bansal, also in his 30s (not related to Flipkart’s promoters), said the deal was a way to reach the top in the fashion space.

The two companies would retain their separate identities and brands, at least for now, with the same management structure and employee base, they claimed. A collaboration team will look for “deeper synergies” in the next two months, even as an initial public offering by Flipkart seems on the horizon.

 

Though the two sides didn’t share the deal value or specifics, analysts and other company sources gave some away. At a press conference in Bangalore, the three Bansals, all Indian Institute of Technology alumni, smiled into the cameras and gave upbeat bytes. None of the two sides has recorded any profit, seven years into their operations. Myntra’s Mukesh Bansal, who has settled for a stake in Flipkart (the size isn’t known) and a leadership role in the company’s fashion space and board, appeared quieter than usual. The executives, who were in the limelight through the day, also addressed a conference call on the deal.

Was the deal struck because investors common to the two companies (such as Tiger Global and Accel Partners) wanted it? To this, Mukesh Bansal said investors weren’t part of the negotiation, as “that would have been a clash of interest”.

Sachin Bansal said no investment banker was involved in the deal.

Analysts said the merger would give value to the investors, as the combined business would grow to capture a large pie of India’s $3.1-billion e-commerce market (excluding travel). In fact, both Flipkart and Myntra have been raising funds aggressively, triggering talks of a mega acquisition. So far, Flipkart has raised $540 million, including $360 million through two rounds of funding in quick succession last year. Myntra has raised $75 million since its launch.

Thursday’s deal is expected to make Flipkart a leader in the fashion space, a promising and growing market, estimated at $60 billion. In a similar acquisition, though much smaller in scale, Flipkart had, in 2012, acquired online electronics player Letsbuy for an estimated $25 million (Rs 150 crore). The acquisition had helped Flipkart make it big in the electronics space.

Other important consolidations in the e-commerce market included Ibibo buying bus ticketing service redBus in 2013 at an enterprise value of Rs 600 crore; that was termed the biggest foreign acquisition of an Indian internet asset.

Under Thursday’s deal, all Myntra employees will also receive stock options in Flipkart. Mukesh Bansal will head Flipkart’s fashion retail business, in addition to his role as the head of Myntra.

On competition, Sachin Bansal said, “When we started, we had said we wanted to be the Amazon of India because at that time, it was the most dominant player in the market. Now, we are thinking beyond that.”

For the company, the Alibaba Group was a role model now, he said, adding there wasn’t any competitive threat from Amazon, which would complete a year in India in June.

“Flipkart and Myntra are getting together to create one of the largest e-commerce stories; together, we will dominate the market,” said Sachin Bansal. “At Flipkart, we believe we want to be the leader in every segment. Fashion is a category of the future; this acquisition will help us become the leader in this category.”

With the merger, Sachin Bansal is eyeing half the market share in the fashion segment. He says $100 million will be invested in this segment soon.

Mukesh Bansal added he, along with other Myntra investors, was “thrilled” about the valuation his company had attracted. “It was very essential to keep Myntra a separate entity and preserve its culture….I’m here for the long haul. We will continue to grow in the market,” he said.

Analysts were enthusiastic about the deal, especially as it came just ahead of a new government taking charge at the Centre. The deal also came at a time when the sector was gearing up for consolidation due to stiffening competition, said Sandeep Ladda, India technology leader at PricewaterhouseCoopers India. Paresh Parekh, tax partner (retail and consumer products), EY, said, “Consolidation, as predicted, was and is inevitable, especially as global players start entering.” As a sector, e-commerce was now ready to take off; now, it was beyond books, ticketing and electronics and was now embracing apparel, furniture, consumer durables, food, etc, he added.

For Flipkart, electronics will continue to be the biggest category in terms of revenue, though the fashion segment might become the largest, in terms of transaction volume.

NUMBER GAME

10 million Products offered by Flipkart; across 70 categories; it records 105 million visitors a month

Rs 1,200 cr Flipkart’s estimated revenue; recently, the company crossed Rs 6,000-cr gross merchandise value mark

650 The number of brands Myntra partners; it has about 100 sellers and records 50 million visitors a month

$1.6- 1.7 bn Estimated value of Flipkart

$300-350 mn Estimated value of Myntra