Walmart-Flipkart deal: Retail sector continues to attract investors

The Walmart-Flipkart deal has once again proved that the retail space is one of the biggest bets for investors, including strategic and financial investors. Over the last few years, investments into this sector have grown four to five times.

According to financial services firm EY, the retail and consumer products (RCP) sector in 2017 reported 109 deals as against 83 in 2016. The aggregate disclosed deal value stood at $2.9 billion, more than four times as compared to the previous year ($637 million). This was primarily owing to one big-ticket deal in which a consortium comprising Tencent Holdings, eBay and Microsoft picked up a stake in Flipkart for $1.4 billion. 

A significant chunk of sector deal activity was centered on consolidation, as players acquired complimentary capabilities to strengthen their existing market positions. Additionally, the year also saw deals focused on the convergence of distribution channels to offer a complete shopping experience to consumers, says EY. According to market intelligence firm Venture Intelligence, Flipkart had seen the highest investment in terms of number of investments and value infused in the last four years, followed by Snapdeal, Paytm and Big Basket.

Flipkart had raised around $ 8.1 billion in five deals during the period, including the $2.5 billion round led by SoftBank in August last year. It has also seen partial or full exit of some of the investors such as Tiger Global, GIC, Kalaari Capital, Accel India and Vulcan Capital from the company in August 2017 in a buyback deal of $718 million, and to the tune of $350 million deal in May this year, it said.

Vibrant E-commerce

In 2017, e-commerce witnessed 24 deals and the aggregate disclosed value was $1.6 billion. Intense consolidation was witnessed in the online retail space as organisations acquired other strategically aligned players in an attempt to gain access to a larger customer base and distribution network. The year also marked the entry of another global e-commerce giant, Alibaba, in the Indian online retail space. An investor group comprising Alibaba and SAIF Partners acquired a 41 per cent stake in Paytm for $200 million. With the recent set of events, the Indian e-commerce sector, which is now dominated by three major players — Amazon, Flipkart and Alibaba (through Paytm), is likely to witness accelerated consolidation as these three attempt to capture additional market share.

On the other hand, some momentum was also visible with online players entering the offline space. Amazon’s investment arm has agreed to acquire a 5 per cent stake in Shoppers Stop, a Mumbai-based retail company, for $27.7 million.

The recent deals indicate that while individual formats (online or offline) will remain important in the near future, omni-channels will increasingly score on convenience and better shopping experience.

Outlook

With rising discretionary spending, favourable demographics and growing internet penetration acting as triggers, the prospects for the M&A sector look promising, says experts.

As the economy transitions toward a less cash model, time is also ripe for players to acquire leading-edge technologies that support digital transactions. Within distribution channels, while online retail will continue to garner a lot of investor interest, the sector is likely to witness M&A activity in the offline space as large players further consolidate their resources.

“India is known as the best market to be in, currently in retail. The income levels are growing, GDP is one of the highest and there is a huge consumer base with disposable income to spend. Almost every company in the world is looking at India as the best market to be in,” said Kumar Rajagopalan, CEO, Retailers Association of India.