It was revealed today that leading ecommerce firm Snapdeal has terminated talks for a takeover by its larger rival Flipkart after saying it will now pursue a more independent path to continue and grow its operations.
Monday saw Snapdeal walk away from a potential sale to Flipkart, who had made an offer to buy the company for a reported $850 million in stock. Many commentators have seen the breakdown of the deal to be very favourable for Flipkart. Many saw the price that Flipkart had offered for Snapdeal as way too high, as Snapdeal’s monthly gross sales have been in decline and are now lower than Flipkart’s fashion unit Myntra. Also, there has been a significant cooling of the Indian ecommerce market since the beginning of 2016, indicating that there is potentially not enough room for more than two horizontal retailers. Flipkart, which is already integrating eBay India into its operations may have struggled to find use for another horizontal marketplace in its fight against Amazon India. Just 11.7% of smartphone users in India have the Snapdeal app compared to 30% that have the Flipkart and and 39% that have the Amazon app.
“The market-share gains Flipkart would have made from this transaction have reduced for every month that the deal has been in negotiation,” said Aman Kumar, chief business officer at Kala Gato.
Flipkart Have “Dodged A Bullet”
Another industry commentator, on condition of anonymity said that Flipkart have “dodged a bullet”.
“Flipkart has definitely dodged a bullet with this deal not going through. The Snapdeal integration would’ve been an unnecessary headache. The only reason why they agreed to buy Snapdeal in the first place was because of the SoftBank investment. And those investment discussions are happening anyway. So, if you can get the milk without buying the cow, why would you need to buy the cow at all,” said a partner at a leading Indian venture capital firm.
Snapdeal however are looking forward to the future with positivity, despite the breakdown of the deal with Flipkart
“We firmly believe in our new direction – Snapdeal 2.0 – part of which is a laser focus on being a champion for all sellers in India, enabling anyone to set up a store online in a few minutes and focusing on providing large selection of products at great prices to consumers,” co-founder Kunal Bahl had said in an email to the company’s employees after calling off the merger talks.
However it may not be good news for staff at the company. The 2.0 version of the company is expected to trigger another round of a mass exodus which could see Snapdeal become leaner by at least 600-800 employees. It currently has close to 1100 people.