Chasing a common goal

E-commerce war prompts investors to merge portfolio companies

Going by the unbridled optimism and crowding of e-commerce space in India, a shakeup was waiting to happen. And it did, mostly through 2012. According to Venture Intelligence, a provider of data and analysis on private equity, venture capital and M&A deals, as many as 15 M&A deals were struck — notably, Flipkart-Letsbuy, Snapdeal’s-esportsbuy, and Shersingh, Fashionandyou-Urbantouch and Zovi-Inkfruit. 

Almost all these had common investors, and this makes them “pseudo mergers”, says Mahesh Murthy, co-founder at early stage fund Seedfund. “It is a case of the same investor having money in two companies, so if one company is doing better than the other, the investor takes money and puts it into the other company.” A merger in the true sense that has different investors on either side aiming for a strategic fit is difficult to conclude right now. “Mergers with different investors are yet to begin, as people are holding on or there is a disagreement on valuation.” 

The ones that sold out did so either because they ran out of cash or they could not compete with bigger players. “It becomes difficult for a niche player, say, a baby products site to compete with larger sites that sell everything from babywear to electronics,” says Rajesh Nahar, founder and CEO of ethnic wear e-tailer, Cbazaar.

In most cases, the acquiring company shut down the acquired brand, integrating the latter’s operations into its fold. Ashutosh Lawania, co-founder of Myntra, which acquired Shersingh last November, says it didn’t make sense to maintain two sites. The Shersingh brand of products are now being sold on Myntra. 

Kashyap Dalal, CEO and founder of Inkfruit, a private label apparel and accessories company that was acquired by private label fashion e-tailer, Zovi, in February this year, has a different view. “It will be a huge loss of value to both if one of the sites is shut down,” he says. “We will integrate the technology and look at having cross-linkages to products on both the sites. For the near future, the front-end of both the sites will continue.” With SAIF Partners as the common investor, Dalal explains that the merger was not driven by investor interests alone. “We found Zovi to be the best option and when you have a common investor it makes the process simpler,” he says. 

In the coming year, the estimated #50-60,000 crore e-commerce market could see more M&As. Only, this time, it could be the coming together of bigger players of equal standing. The Zovi-Inkfruit deal, is one of private brand retailers with similar valuations, is probably an indication of things to unfold.