Ola, Flipkart and Snapdeal keen on their acquired brands

Young companies are retaining the brand names of those they acquire, indicating that it is not just scale that is important but also the acquired brand's loyal base

Acquisition, and not merger, seems to be the trend among India’s online consumer businesses. From Flipkart’s acquisition of Myntra to Snapdeal’s buyout of Exclusively.com, to the more recent Ola’s (previously Ola Cabs) deal with TaxiForSure (TFS), the buyers have chosen to let the acquired entity exist and operate separately.

One of the key reasons for these companies to retain the brand identity of the new company under their aegis is to keep the brandpositioning intact. This allows them to reap dividends of the hard work, resources and millions of dollars already spent on them.

“The entire e-commerce segment is based on heavy marketing for brand creation and promotions. So, the valuation of a company when it gets acquired is not only for the business it does, but also for the brand’s value,” says Sumchit Anand, managing director of M&A advisory firm, Acquisory Consulting India.

For instance, while Flipkart is known as a horizontal-marketplace, focused on books and consumer electronics, Myntra is among the largest names in online fashion retail.

Snapdeal, a rival of Flipkart, too, chose to keep its latest acquisition of luxury goods portal a separate entity. “Luxury should feel like luxury and not the day-to-day stuff we do at Snapdeal,” company co-founder and CEO, Kunal Bahl, says.

Vineet Toshniwal, MD, Equirus Capital, says Ola can easily keep TFS as a complete mass market brand.

Anand says, “An added benefit of maintaining two separate profit and loss accounts could be that the acquiring company can keep a tab on how its acquisition is doing.”

According to Toshniwal, the acquisitions have two parts: “First, there is consumer servicing and then there is the back-end or supply chain. The latter is more complex, while keeping the acquired entity separate helps in retaining the brands’ loyalty at the front-end”.

Investments in brand-building and advertising are among the top three expenses for most online consumer Internet businesses. According to sources, the marketing budget of many small start-ups are as high as some of India’s decades-old businesses.

Hinting at the kind of expenditure Ola and TFS have made in building their brands, TFS co-founder, Raghunandan G, says: “Over the last few months, Ola and TFS were spending a lot in competing with each other rather than adding value to stakeholders. So, we thought it was best to join hands”.

However, even though Ola and TFS said they would continue to operate as separate entities, analysts say it would make more sense for the two to merge in the near future. “In the case of the e-commerce acquisitions, their businesses are mostly complementary and not really the same,” says Yugal Joshi, practice director at Everest Group. “But Ola and TFS are doing more or less the same thing. So it would make most sense for them to merge as one entity.”

Bhavish Aggarwal, co-founder of Ola, says, “TFS works with operators but Ola mostly works with driver-entrepreneurs. TFS has a clear focus on the economy segment of cab users, with offerings like Nanos and Rs 49 base fare. Both brands have a shared vision of revolutionising personal transportation but keeping the entities independent would help leverage our respective strengths.”

Flipkart has no plans of merging Myntra with itself. Myntra’s founder Mukesh Bansal recently said that the two companies are not looking to merge.

Experts point to the challenges around integration, especially in the area of technical plug-ins of teams as another primary reason behind this ‘arm’s length’ approach in acquisitions, especially for new-age companies.

“Making an acquisition is easy but integration is a bigger challenge,” says Anand. “There are cultural challenges and differences in ethos and even in go-to-market strategies. So, it is not easy to merge two young companies.” The headline of this report has been modified to replace Myntra's name with Flipkart's