E-commerce firms go shopping to remain relevant

 E-commerce companies are increasingly looking for smaller targets to widen their product portfolio and also to keep investors happy with an eye for future rounds of funding.

Indian e-commerce players like Flipkart, Myntra and Snapdeal have recently made some acquisitions, which might increase their market presence.

In February this year, Flipkart bought Letsbuy.com, seller of electronic goods, for around $20 million. Its CEO Sachin Bansal had then said in a statement that the acquisition was made due to its appropriate timing and attractive pricing. However, Flipkart declined to disclose the acquisition price.

When contacted, Flipkart, Myntra (bought SherSingh) and Snapdeal (bought Esportsbuy and Grabbon) declined to comment on acquisitions and how viable it is for a Series B or Series C-funded company to buy another one.

The CEO of Indiaplaza, India’s first e-commerce venture, K Vaitheeswaran told Deccan Herald, “Most companies are now struggling to raise capital and they feel that acquiring a company would give them an inorganic advantage in growth.”

The sheer size of the e-commerce market is a compelling factor for firms to take the acquisition route. According to a report by consultancy firm Technopak, the retail e-commerce market size in India is estimated to be $14 billion in 2012 and is projected to reach $74 billion by 2017.

Vaitheeswaran explained that companies that want to expand their portfolio, go for acquisitions as they do not have to start from scratch in that particular field or segment and can take advantage of what the acquired company has already created in the market, including customer base and goodwill.

Earlier this year, e-commerce giant Amazon entered India through its subsidiary Junglee.com, which is not a direct seller but an seller aggregator like eBay. This, many believe, has given Indian players the impetus to grow their business aggressively eyeing the top spot in e-commerce sector.

According to the Indian subsidiary of tax and advisory consultancy firm, Gant Thornton, there is a definite shift in approach. Partner (Transaction Advisory Services) Raja Lahiri said, “Consolidation in the e-commerce space is clearly a growing trend. Companies with niche product/service offering and strong technology platforms facing profitability/cash flow issues would be potentially good targets.”

Both Lahiri and Vaitheeswaran agreed that investor push is a driver when it comes to such mergers; but Vaitheeswaran said that investor push takes place when it’s the same investor putting his money in both the companies.

However, on the flipside, mergers are not always necessarily great for the acquired company as the price paid is often less than the cost of its inventories or procurements.