BENGALURU/CHENNAI: Flipkart’s $1.4 billion fund raising round, while bringing down its valuation to $11.6 billion from its peak of $15.2 billion, is nevertheless a positive sign for India’s cash strapped ecommerce sector, according to market analysts. The $11.6 billion valuation for Flipkart is a few hundreds of millions higher than what experts predicted it could secure, and shows that Indian ecommerce firms can still scrounge up funds even as venture capital funding slows down.
“This is good news for Flipkart as it solidifies it as a market leader at least in the short term, keeping competition especially Amazon, at bay. It is interesting to note that this round sees the investment from strategic investors that will bring technology and market expertise that Flipkart earnestly needs, in contrast to the previous round of mostly financial investors,” pointed out Gartner’s Sandy Shen, Research Director.
The deal comes as a sign that funding is shifting from financial firms to sector giants who want to consolidate their businesses, pointed out another senior analyst. “The consolidation process is well and truly underway. Now, as Venture Capital firms back away from major fund infusions, market players themselves are re-allocating funds and consolidating their interests in the market. Going forward, we will see more of these.”
The ongoing talks between SnapDeal’s investors, primarily Softbank, for a possible merger between the two homegrown ecommerce players will also get a boost from the current fund raising round. SnapDeal’s attempts to raise funds have also been stifled until recently due to conflicts between investors on what valuation these funds should be raised at. However, the three main stakeholders — Kalaari Capital, Nexus Venture Partners and Softbank, have ironed out their differences last week, clearing the way for a Flipkart-SnapDeal merger.
Mergers & Acquisitions on the rise
Merger and Acquisition (M&A) deals are fast accelerating, across sectors, in India as companies have begun consolidating existing infrastructure and resources to better compete in a market that has seen the entry of foreign and domestic rivals with deep pockets. While the ecommerce sector has seen Flipkart take over eBay.in and talks are in progress for a merger between the former and fellow Indian ecommerce player SnpaDeal, the telecom sector has also seen a slew of M&A deals. The biggest is the recently announced merger between Vodafone and Idea, which will create a $23 billion behemoth, Bharti Airtel has also embarked on a series of acquisitions including the Indian wing of Telenor and the 4G business of Tikona. Meanwhile, Reliance Communications has finalised a merger with fellow rival Aircel and reports say that the RCom-Aircel-MTS combine is in talks with Tata Teleservices too, where the latter will join the combine. Experts day that such M&A deals will only increase in tandem with the pressure to compete.