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Flipkart buys Letsbuy in a cash-equity deal

BS Reporter  |  New Delhi 

Signalling consolidation in the Indian online retail space, leading e-commerce company Flipkart has acquired Letsbuy, a strong cyber player in the consumer electronics category. While the industry referred to the deal as an Amazon-Junglee effect, co-founder and CEO of Flipkart Sachin Bansal told Business Standard, “the discussions have been on for some time. So it would be incorrect to say that it’s a fallout of Junglee.”

US e-commerce giant Amazon made an entry into the Indian market last week with Junglee, an online shopping site bought by Amazon a few years ago.

The Flipkart-Letsbuy deal size was not announced, but analysts estimated it at around Rs 125 crore (roughly $25 million). It was a combination of cash and equity deal.

Refusing to disclose the deal size, Bansal told this newspaper, “the price was definitely very attractive for us at this point in time”. Recently, Snapdeal, another e-commerce site, raised money from financial investors on a valuation of $200 million. Flipkart is learnt to have been valued at $1 billion.

Flipkart and Letsbuy have common investors in Tiger Global and Accel Partners, according to analysts.

“With this move, Flipkart has firmly established itself as the leader in the consumer electronic space. This deal will also allow for a faster rate of expansion for both companies — giving the combined entity a much larger share in the consumer electronics market,” Flipkart said in a statement. Bansal said: “This acquisition fits into our strategy of building dominant shares in all categories we operate in.”

While Letsbuy, along with its 350-member team, will continue to function independently, it can now access Flipkart’s platform and supply chain capabilities.

Purnendu Kumar, vice-president, retail and consumer products, Technopak, a consulting firm, said the Flipkart-Letsbuy deal reaffirmed the significance of category leadership in online retail. “This is just the initial stage of the consolidation process in e-tailing, much more will follow,” he said. Globally, consolidation had happened in a similar manner in this space, Kumar added.

When asked about Flipkart-Letsbuy’s biggest competitor in the online electronic space now, Bansal replied: “We believe e-commerce in India hasn’t reached a stage where players can indulge in share gain tactics. The market has to be built up by getting those shopping offline to online.” He added Flipkart had been and would continue to work in that direction. “The acquisition now gives us the opportunity to accelerate this process.”

On future acquisitions, Bansal said: “We are open to all opportunities that can help us scale up either in terms of portfolio (categories), customer base or our operations. So we will be open to more such opportunities coming our way.”

Letsbuy founder and CEO Hitesh Dhingra said the company had a choice to raise a large round of funding as well. “However, aligning our business with the largest player in the market made sense as the resultant synergies will guarantee our customers the best possible service, price and selection,” said Dhingra.

Flipkart, which has been involved in some acquisitions earlier too, such as WeRead and Mime360, aims to cross the Rs 500-crore revenue mark this financial year. Letsbuy expects to cross the Rs 150-crore mark this financial year.

The e-commerce industry (including travel, financial services and e-tailing) is pegged at around Rs 50,000 crore. E-tailing or online retail business is estimated lower than Rs 3,000 crore.

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First Published: Fri, February 10 2012. 00:54 IST