Banks left out as 'Kunal calls Kunal' for e-commerce M&As

The way Snapdeal bypassed investment banks for the Freecharge deal might give the bulge bracket banks sleepless nights

When Snapdeal acquired Freecharge, investment banks lost an opportunity to participate in India’s largest e-commerce transaction with an estimated valuation of $400 million (Rs 2,480 crore). Banks did not get a chance as Kunal Bahl, CEO and co-founder of Snapdeal, called Kunal Shah, founder and CEO of Freecharge, to discuss the deal and complete it in a record three weeks.

“I knew Kunal Bahl for eight years. We did not feel it necessary to involve investment bankers as we have been doing business for some time,” says Shah in a matter of fact way. Shah did not feel the need also because his investors like venture capital fund Sequoia were supportive. “They made it a breeze when there was alignment between the two founders,” he says.

In the e-commerce industry M&As are based on existing investors or entrepreneurs identifying synergy with other companies and then driving the transaction based on business rationale or a common vision of evolution. “Companies are pivoting so fast that before a third party adviser can get a true understanding of the strategic needs of a business,  entrepreneurs or anchor investors are able to identify and act upon the strategic rationale that drives mergers,” says Gaurav Mehta, head of investment banking at UBS in India.

M&A transactions in e-commerce have seen rapid growth since last year. The year so far has had 34 transactions against 46 acquisitions in 2014 according to data provided by Tracxn, which specialises in tracking start-ups. Kaku Nakhate, country head of Bank of America Merrill Lynch, admitted in a media interaction to having changed her mind seeing the momentum in e-commerce. The firm is building capabilities to cater to the specific demands of the industry.

While the global bulge bracket is missing from M&A in e-commerce, homegrown investment bank Avendus was agile in advising TaxiforSure in its acquisition by Ola earlier this year for $200 million (Rs 1,240 crore).

Citibank helped mobile commerce firm Paytm raise $575 million from Ant Financial Services, a part of Chinese e-commerce giant Alibaba. Earlier Deutsche Bank advised Qatar Investment Authority on buying a $150 million stake in Flipkart when the most valued Indian e-commerce company raised $700 million from investors in December.

“We believe we can bring our knowledge and network of investors to add value in capital raising and other strategic activities in e-commerce in India,” says Madhur Deora, managing director for investment banking at Citi India. The bank led the IPOs of InfoEdge in 2006 and JustDial in 2013, as well MakeMyTrip's follow-on issue in 2014.

E-COMMERCE M&AS IN 2015

Snapdeal – Freecharge
OlaCabs- TaxiForsure
News Corp- VC Circle
Snapdeal- Unicommerce
FoodPanda- Just Eat
Snapdeal – RupeePower
Snapdeal- Exclusively
Twitter- Zipdial