Why the Flipkart-Snapdeal deal snapped, and the flip side may still not be gloomy | analysis | Hindustan Times
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Why the Flipkart-Snapdeal deal snapped, and the flip side may still not be gloomy

The biggest fallout of the Flipkart-Snapdeal acquisition not happening may be on the country’s startup ecosystem. But as two other acquisitions in India show, the best way to get acquired is to build solid assets of genuine value

analysis Updated: Aug 03, 2017 12:28 IST
Snapdeal.com  co-founder and COO Rohit Bansal with the site’s founder and CEO Kunal Bahl. Unless Snapdeal manages to continue to raise large sums of money independently, they can get badly sandwiched between Flipkart and Amazon
Snapdeal.com co-founder and COO Rohit Bansal with the site’s founder and CEO Kunal Bahl. Unless Snapdeal manages to continue to raise large sums of money independently, they can get badly sandwiched between Flipkart and Amazon(Pradeep Gaur/Mint)

There have been several explanations why the deal with Flipkart was snapped off at the last minute. The real reasons may only be known to the shareholders but the fact is any transaction is hard to consummate unless both parties are reasonably (if not equally) interested about it. In this case, Flipkart couldn’t have been excited since they were hardly getting any useful assets worth a billion dollars of paper.

The key reasons why acquisitions happen are because the acquirer gets access to valuable assets like (a) superior technology (b) stronger brand (c ) new set of customers (d) new set of suppliers or (e) well-trained employees. Clearly, Flipkart has a stronger brand, they do not need the technology, there will hardly get any customers or suppliers from Snapdeal who are not engaged with Flipkart and Flipkart themselves have excess employees. It looked like Flipkart was being forced into the transaction so that Tiger could get some cash out and Softbank could get a foot into Flipkart by investing cash which Flipkart needs to continue its battle with Amazon. Except for Softbank’s cash, there was no other benefit for Flipkart. In that sense, this snapped deal is a great outcome for Flipkart, especially if they can pull off a huge US $ 2 billion investment from Softbank, as is being talked about, without being burdened by Snapdeal.

On the other hand, this is not a good outcome for Snapdeal and its shareholders especially the earlier investors. I expect Snapdeal to keep falling behind Amazon and Flipkart in the Indian e-commerce race which means the value for the investors will keep dropping unless of course the founders are able to pull off Snapdeal 2.0. Unfortunately, this will not be easy because there is nothing unique about the Indian Taobao approach and in any case Indian vendors will prefer to sell on Amazon or Flipkart which can boast of increasing traffic. Unless Snapdeal manages to continue to raise large sums of money independently, they can get badly sandwiched between Flipkart and Amazon who will both deploy massive marketing budgets to win India. An opportunity to salvage something probably just went down the drain.

I do not believe that all transactions with Snapdeal are off though. The money from the sale of FreeCharge will give Snapdeal some breathing space and time to regroup and re-evaluate deals. I would not rule out a transaction with some offline retailer in future because most offline retail chains continue to struggle with their digital transformation projects and some of Snapdeal’s assets may be of value although certainly not in the US $ 950 million range. The news about a potential snap deal with Infibeam was probably a red herring — Infibeam started off on the high cost B2C horizontal e-commerce space but quickly moved into the more profitable B2B e-commerce PaaS (Platform as a Service) space so it makes no sense for Infibeam to move back into B2C e-commerce.

The biggest fallout of this deal not happening may be on the startup ecosystem. One of the key reasons behind the success of the startups in Silicon Valley has been the steady and regular acquisitions of tech startups by big giants like Microsoft, Google, Amazon, Apple, Facebook etc. (they are called the Five Horsemen). This was a huge motivation for people to come together and startup. Unfortunately, acquisitions in India are few and far between and the investment community was getting worried that their India bets may not pay off as handsomely as they expected. A good deal between Flipkart and Snapdeal could have got some excitement back but that is not happening, at least for now.

Incidentally, while all this hullabaloo about Flipkart and Snapdeal was going on, two important acquisitions in the Indian startup space quietly went unnoticed - Dentsu Aegis buying Sokrati and Athenahealth buying Praxify. This just proves the point that the best way to get acquired is to build solid assets of genuine value.

K Vaitheeswaran is an e-commerce pioneer and author of the book Failing to Succeed - The story of India’s first e-commerce company

Twitter: @vaitheek

The views expressed are personal