Flipkart buys Myntra, adds dash of fashion
May 22 2014 , Mumbai
Cash-and-stock deal valued at Rs 2,000 crore
The transaction marked the biggest consolidation in India’s e-tailing space, valued at $2.3 billion and projected to grow to at least $19 billion by 2019.
Flipkart, which is seeking to extend its lead over rivals and boost valuation ahead of a potential initial public offering, said it would invest $100 million in the fashion business.
The deal brings together two highly complementary businesses, each recognis-ed and acknowledged e-commerce leaders and innovators, and creates an outfit well-positioned to serve a growing tribe of Indian e-shoppers, roughly estimated at 10 million and growing at 30 per cent CAGR.
“Together we will dominate the market,” Flipkart co-founder and CEO Sachin Bansal said. “We are getting together to create one of the largest e-commerce stories.”
The buyout will help Flipkart compete more aggressively with Amazon India, Snapdeal and others, while Myntra gets access to ready funds for its planned expansion to achieve its target of Rs 20,000 crore in gross sales by 2020.
Flipkart wants to be leader in every segment and fashion is a category of the future, Bansal said. “This acquisition will help us become leaders in this category.” Post acquisition, Myntra and Flipkart will account for 50 per cent market share in the fashion segment.
Myntra chief executive officer and co-founder Mukesh Bansal will head the fashion business for Flipkart and join the board. Flipkart plans to invest $100 million (around Rs 600 crore) in the fashion business in the near-term.
The terms of the deal say the two companies will continue to work separately, all Myntra employees will get Esops to be converted into Flipkart stock and common investors of the two firms — Tiger Global Management, Accel Partners and Sofina Capital — will get more shares in the merged entity.
“The merger seems like a long-term strategy for Flipkart to become a dominant player in the market,” said Rahul Khanna, managing director at the venture capital firm Canaan Partners. “While the apparels business brings in higher margins, it will also be earning higher cost savings by riding the latter’s strengths.”
Some projections showed Flipkart’s valuation jumped to $2-$2.5 billion following the Myntra deal.
“We believe the future of fashion in India is e-commerce. Myntra has a strong team with excellent domain knowledge. They have the best relationships with lifestyle brands. This partnership will strengthen our positions in the fashion space. We will continue to work as independent entities and grow together as leaders in the Indian fashion and lifestyle industry,” Sachin Bansal along with co-founder Binny Bansal said in a statement.
Sachin and Binny, both alumni of IIT Delhi and who worked for Amazon.com previously, founded the Bangalore-headquartered Flipkart in 2007 as an online bookstore, which then graduated to sell products across categories, including fashion, electronics and furniture.
“Sachin, Binny and their team have built a pioneering e-commerce platform on a foundation of strong technology and customer-centricity. Flipkart is the most powerful e-commerce brand in India and has a very ambitious agenda to build the next generation of retail in India. Leveraging mutual strengths, we will build Myntra into India’s leading fashion powerhouse and create many original fashion brands,” said Mukesh Bansal, co-founder and CEO of Myntra.
Myntra too is a venture of IIT alumni — Mukesh Bansal, Ashutosh Lawania, Imran Khan and Vineet Saxena. After having worked for several startups, the four founded it in February 2007 to sell personalised products such as T-shirts, mugs, greeting cards, calendars, key chains and diaries. It has since partnered with more than 650 leading fashion and lifestyle brands and claims more than 50 million visits a month. “The mission is to bring high-quality and affordable lifestyle products,” said Flipkart’s Bansal.
E-tailing is in a consolidation stage in India, said Pragya Singh of Technopak Advisors, a management consulting firm with focus on retail, consumer product and e-tailing.
“Flipkart acquiring Myntra makes a lot of sense as they have a common set of investors. They are leading players in their respective verticals and can help them take on the competition. The acquisition will help the joint entity take the leadership position. By keeping Myntra a separate portal, each entity will have a distinct positioning and there will be no cannibalisation,” said Singh.
Global e-commerce giant Amazon has become very aggressive in the Indian market of late. India’s existing policy doesn’t allow FDI in e-commerce, forcing big e-tailers Amazon and eBay to enter the country through the marketplace model in which they do not sell products directly but facilitate local vendors.
The department of industrial policy and promotion has announced that it will soon push for a higher FDI cap in e-commerce. As many as 38 stakeholders, including Google, met DIPP officials on May 15 . “The sequence of events in the Myntra fund raising journey and eventual merger with Flipkart makes it clear that the lifestyle segment is attractive in online commerce in terms of size, economics and margin relative to electronics etc, which is traditionally the mainstay of Flipkart. The merger makes Flipkart’s pro-forma economics better,” said Suchi Mukherjee, chief executive officer and co-founder, LimeRoad.
“Consolidation is the key to survive in this largely-underpenetrated market,” said Rahul Khanna, managing director at the venture capital firm Canaan Partners. “E-commerce as a business requires deep pockets and this consolidation brings in the required financial and people bandwidth,” he said.
“Companies are trying to put one and one to get three through deals like the Flipkart-Myntra merger.
Khanna feels there was still a long way to go for the Indian e-commerce industry and says further consolidation seems unlikely in the near future. “Beyond the top three or four players, there are not many assets to be bought. The question what is available to buy and the answer is not much.”
(with inputs from Sangeetha G and S Shyamala)