Snapdeal-Flipkart deal called off: Can Snapdeal go solo? Difficult but not impossible, say experts

The much-hyped deal between Flipkart and Snapdeal, which was earlier in the day reported to have hit the pause mode, has been called off. “Snapdeal has been exploring strategic options over the last several months. The company has now decided to pursue an independent path and is terminating all strategic discussions as a result,” Snapdeal spokesperson said in an emailed statement, without naming Flipkart, PTI said_._ The deal has been in the works for long ever since the e-commerce company started feeling the pinch of the fierce competition in the sector. Media reports cite various reasons for the fall-off of the deal, including valuation mismatch. Snapdeal had even recently sold off FreeCharge for Rs 385 crore, at one-sixth of the price it bought the mobile payment solutions company in 2015, to Axis bank. There was speculation that this could clear the path for the sell-off of the company. Sector analysts and specialists have been surprised by Snapdeal’s decision to call off the talks. “With big investors involved in the deal with different goals, there would have been roadblocks with the acquisition. Even the small investors – early angels, venture capitalists and co-founders, are betting on a exit strategy and a bigger valuation,” said Paula Mariwala, Partner, Seedfund and Co-Founder, Stanford Angels. Everybody wants to be a leader in the business. Snapdeal also wants to be one. “It is not easy to let go,” she says. Has the exit from Freecharge made Snapdeal confident of going solo as a lean entity? Industry sources shot down the suggestions. “They will to have to raise money from existing investors. It is not going to be easy and in the wake of stiff competition from Flipkart and Amazon. Snapdeal will have no chance to go it alone,” analysts said. [caption id=“attachment_647457” align=“alignleft” width=“380”] Kunal Bahl, Co-Founder and CEO, Snapdeal[/caption] Japan-based Softbank, which is keen to invest in Flipkart, had faced resistance from early investors in Snapdeal – Kalaari Partners and Nexus Venture Partners – over the valuation issue. Softbank later did manage to get Kalaari Partners on board for the planned Snapdeal sale. Control, a decisive factor There are other factors at play. It may be issues of control and or valuation, said Devangshu Dutta, chief executive of Third Eyesight, a consulting firm. “It would require all shareholders of Snapdeal to agree to the deal. Some may not be in favour of it,” he said. The pittance at which FreeCharge was sold could also be another reason for the board of Snapdeal and its founders to kick in their heels and not let go off a flailing company in the face of competition from giants like Flipkart and Amazon. Kunal Bahl is known to be a fighter, a sector specialist said, adding that he would not like to exit without a higher valuation for Snapdeal. The stalling of the deal could be a combination of the egos of the founders and math of the investors at play, the specialist said. The waters have been muddied now with both parties – Flipkart and Snapdeal – not being able to come to the table. However, with the sale of FreeCharge, Snapdeal has breathing space and with it looking for a buyer for its logistics arm, Vulcan Express, it looks like it probably wanted to go it alone. Though investors are believed to have called the shots at Snapdeal, the voice of its co-founders are significant. “I don’t think investors had much choice really in this deal,” an analyst said. Another reason could be that Flipkart’s acquisitions over the last three years have not yielded any senior management roles for the executives of these firms after being acquired, pointed out Dutta, saying that could be a cause for concern too. More attrition can be expected from Snapdeal in order to be fitter and leaner to survive on its own. “But a Snapdeal 2.0 will be very difficult if they follow their existing business strategy,” said Dutta. Snapdeal will have to reinvent itself to be able to survive the onslaught of Flipkart and Amazon. Though Amazon has had a 77 percent drop in profits largely because of its focus on new markets like India, it is willing to burn cash to acquire a leadership position here. It also has the technical edge as well. That is not the case with Flipkart which has multiple investors who will have to all agree to the e-commerce major’s plans to scale up. Expressing his surprise at the Snapdeal-Flipkart deal being called off, Harish HV, Partner, India Leadership Team, Grant Thornton India LLP, said though both the parties were actively engaged in the deal, trying to marry in the larger interests of the company and the interests of its shareholders may have posed difficulties. “Something has clearly not worked for Snapdeal and there could have been challenges,” he said. The company said it has a “new and compelling direction - Snapdeal 2.0” and has made significant progress towards the ability to execute this by achieving a gross profit this month. “In addition, with the sale of certain non-core assets, Snapdeal is expected to be financially self-sustainable,” it added. Snapdeal 2.0 would be a tough call, if the company continues to follow its present business strategy. “Snapdeal will have to raise money from independent sources and that is going to difficult, but not impossible,” said Dutta. Kunal Bahl, co-founder, Snapdeal was upbeat on Twitter following the announcement.

Many new e-commerce businesses are being launched in this difficult scenario in India where there is a fund-crunch and valuations are being drastically revised. There are clear market leaders here like Flipkart and Amazon. Snapdeal will have to reinvent itself and not follow the agenda set up by Flipkart and Amazon. But this deal break off now forces Flipkart to rethink its strategy from the point of view of competition and maintain its slim lead in the e-commerce business.