VC investors welcome M&As in e-commerce

The consolidation taking place in the Indian e-commerce sector offers fresh hope for venture capital investors. Investors have been finding their money stuck as no exit routes are seen. Last year, there were about 18 mergers & acquisitions (M&As), worth $63 million, against 12 deals in the previous year.

Investment banker-turned entrepreneur Falguni Nayar said, “It’s a long process to establish the retail business. Similar to acquiring brands in consumer space, mergers give a strong foothold in the e-commerce space.”

Nayar, an investment banking veteran with two decades of experience with the Kotak Mahindra group, had launched Nykaa.com, a women-centric beauty and wellness e-commerce portal last year.

According to her, merger of portfolios owned by the same investors will enable them to handle the business easily. Last month, private equity (PE) major SAIF Partners-backed fashion retail sites — Zovi and its rival Inkfruit — merged their business. The merged entity received $10 million from SAIF and Tiger Global, its existing investors.

The examples of recent mergers have shown the fact that VC investors are keen to support the merged entities, where the business as well as the customer base becomes larger. Last month, SportsNest.com, an e-commerce venture offering sports goods and fitness products, merged with its competitor, PlayGroundOnline.com. The merged entity has raised undisclosed funding from Blume Ventures, existing investor of SportsNest.com.

Prashanth Prakash, partner at Accel Partners, said, “Building a strong customer pool is very expensive and it makes sense to get a larger audience through these mergers.”

According to Prashanth, one the major challenges the e-commerce industry will witness is the lack of new funding. “Compared to the small players, larger merged entities can attract more PE/ VC funding in future,” he said. He added that the risk also may be lesser when entities become larger.

Last year, the sector saw a lukewarm response from VC investors, when the deal size went down to $340 million from $410 million in 2011. Although the number of deals went up by 20, decline in size shows the concern of investors over the sector, according to experts.

Sachin Bansal, founder & CEO of Flipkart, said, “2013 might be the year we see consolidation in the online shopping space as players combine their respective strengths, thus contributing to the improvement of the overall e-commerce ecosystem. This can only spell good news for the end user as offerings and services become smoother and more comprehensive.”

Leading M&A transactions in e-commerce include Concur Tech-Cleartrip, GS Home Shopping-TV18 Home Shopping and Flipkart-eTree Marketing.