India’s biggest e-commerce company, Flipkart, is in the final stages of completing a merger deal with the country’s fast growing online fashion retailer Myntra, in what could potentially create a much stronger entity for fending off aggressive rivals Amazon, Walmart and the eBay-backed Snapdeal.
At least three people directly familiar with ongoing talks said the Myntra board started taking investors’ approvals for the sale in March. The deal values Myntra at around $330 million. Flipkart has been valued at around $2.5 billion in this transaction, according to one of the persons.
“Flipkart is registered in Singapore and Myntra is completely based here — that’s creating some delays and complexities around jurisdiction, etc,” one of the people said. “Some entities are also registered in Mauritius, adding to the delays in making this transaction happen early.”
He added that it could take another month at best before all the formalities are over.
“Unless the process runs into a rough weather because of some regulatory, legal bottlenecks, it’s a done deal,” the person added.
A Flipkart spokesperson said the company won’t comment on market speculation, and Myntra had not responded to an email query.
Flipkart and Myntra had started merger talks in January this year, as this Times of India story mentioned. Later, the talks slowed after Myntra founders and the board preferred to invest in their own growth story by raising a fresh $50 million funding, and did not pursue the merger offer from Flipkart.
But their common investors Accel Partners and Tiger Global did not give up. The stakes are too high for them, especially with Amazon beginning to build pressure through its online marketplace model and Walmart preparing its e-commerce foray in India. Moreover, online fashion buying is a category where Flipkart can use Myntra for widening its gap over everybody else.
Indeed, India’s online fashion retailing, a category led by Myntra, has been growing at a scorching pace, nearly doubling in value from $278 million in 2012 to $559 million in 2013.
After Flipkart achieved $1 billion in annual GMV earlier than forecasted, the online retailer has looked more aggressive to pursue bigger acquisitions. Sachin Bansal and Binny Bansal, the former Amazon employees who founded Flipkart in 2007, said this reflected 100x growth since March 2011 when the company was doing around $10 million in GMV.
“With this scale, we are in a much better position this year to explore acquisitions across the areas we have identified,” Binny had said in an interview then.
Both Flipkart and Myntra are among the most funded e-commerce startups in India. Flipkart has raised $540 million so far from investors including Accel, Tiger, Dragoneer Investment Group and Morgan Stanley Investment Management. In October last year, it raised $160 million, taking its Series E funding to be the largest ever by any Indian Internet company.
In January this year, Myntra closed a $50 million round with four main investors: PremjiInvest, Belgian-based Sofina, Accel and Tiger Global, taking the total capital raised to $125 million to date.
Myntra is on track to have gross merchandise value — the total value of goods sold via Myntra’s portal — of $100 million for the current fiscal year. But it has been growing at a rapid rate. In April 2013 the rate was 100% every six months, and Myntra believes that GMV will be $1 billion by 2016.
If the deal goes through, PremjiInvest, the investment vehicle of the family of Azim Premji, with a fund size of approximately $2 billion, will see its around $25 million investment more than double in just two months.
India’s e-commerce market is projected to grow sevenfold to $22 billion in the next five years, as Internet infrastructure improves further, making it easier for the country’s nearly 200 million online population to shop on-the-go. The country’s e-commerce market (sans travel sites) is currently worth $3.1 billion annually — just 1.5% of the value of China’s e-commerce sales, which are approaching $200 billion.
As we wrote this piece last month based on a report from Accel Partners, women shoppers, increasing mobile phone penetration and online fashion are among top drivers for setting the country’s e-commerce segment on fire.