Something did not go right on the weekend of July 29/30. There was an important meeting scheduled between Snapdeal and Flipkart for Monday, July 31, which was canceled. This sounded the death knell of the merger deal between the two e-commerce giants. Earlier on July 26, the board of Jasper, the holding company of Snapdeal, had given a go-ahead to continue negotiations for a Snapdeal sale to Flipkart, based on an enhanced buyout offer of $850 million by Flipkart two weeks earlier.
Five major reasons could be assigned to the demise of the deal.
1. Kunal Bahl and Rohit Bansal - the two founders were always opposed to the deal. In the days and weeks preceding the calling off of the deal, Kunal had managed to persuade some of the important board members on his vision of a Taobao and Rakuten like market place, which he called Snapdeal 2.0. Patterned on Alibaba’s Taobao and eBay, Kunal apparently convinced his Board that Snapdeal 2.0 would be an asset-light, local market place which would be much easier for sellers to sell on. The company would shed significant weight, go down from the existing 1,200 employees to perhaps 300 employees in the new avatar. The new Snapdeal would not any longer be into the competitive one-day-two-day delivery system, but would focus on operational efficiencies of its sellers, focusing on cost efficiencies. Basically, what Kunal must have told his board was that the acquisition of eBay by Flipkart had left a void in the ‘market-place’ space in India where the e-commerce entity merely acts as the mall, allowing sellers to open their own outlets, and therefore, playing the role of a destination and real estate owner only. Alibaba in China has perfected this model through Taobao. Bahl sold Snapdeal 2.0 as the Taobao of India.
2. Some of Snapdeal’s minority shareholders, including Azim Premji had protested and opposed the proposed pay outs under the Flipkart deal to Nexus Venture Partners, Kalaari Capital and to the Snapdeal founders, Kunal and Rohit. Snapdeal co-founders Kunal Bahl and Rohit Bansal were likely to receive $30 million in cash each from SoftBank after their exit from the company. Kalaari and Nexus were to receive $60 million from SoftBank, in addition to equity in Flipkart. This special treatment to select shareholders, orchestrated by SoftBank to buy their peace, irked other shareholders.
3. Nexus Ventures always remained negative on the Flipkart deal. Nexus was the first of Snapdeal’s investors. Along with Kalaari, they had a veto right on critical matters including the proposed distress sale. Both Kalaari and Nexus steadfastly remained opposed to the Flipkart deal till Kalaari’s Vani Kola succumbed to SoftBank pressure, resigned from the Snapdeal Board and fell in line with the SoftBank proposal which some say included a $30 million sweetener for Kalaari. This left Nexus largely isolated within the Snapdeal Board. But Nexus remained fully aligned with promoters Kunal Bahl and Rohit Bansal, including bringing in $17 million in fresh equity into the company in May this year, which was ostensibly passed off as a transaction related to Unicommerce, but has largely been seen as a lifeline for the cash starved Snapdeal at that crucial venture. Nexus, insiders say were vociferous in their support to Snapdeal 2.0 as it would help Snapdeal stay independent for a while, till new suitors could be engaged. Nexus’s continued resistance to Snapdeal sale can be ascribed to the fact that the venture firm never liquidated any of its stake in Snapdeal despite multiple funding rounds. Kalaari on the other hand were smarter. Reports have it that Kalaari cashed out at least $100 million by selling a portion of its original stake to SoftBank a couple of years ago. The Flipkart deal would have left Nexus looking very stupid.
4. SoftBank had been nudging Flipkart on changing the deal structure somewhat to accommodate issues it was having with possible tax liabilities that would get imposed on SoftBank. Flipkart did not readily oblige.
Separately, SoftBank had readied what some say was a Plan B to invest $1.5-2 billion into Flipkart directly if the Snapdeal deal were to fail. The continued resistance within the Snapdeal Board had alerted SoftBank to the possibility of a possible talks failure. SoftBank was supposed to be working in tandem with Tiger Global, the big investor in Flipkart but the entire orchestration did not eventually bear results.
5. The sale of FreeCharge, once bought for $450 million by Snapdeal from Kunal Shah and Sandeep Tandon, for $60-65 million to Axis Bank, emboldened Kunal Bahl to announce and propagate Snapdeal 2.0. Despite the fact that the value of FreeCharge had eroded by over 80%, yet the cash generated by the Axis sale gave Snapdeal the oxygen that Bahl and Bansal were looking for. The corpus of about Rs 400 crores provided the necessary lifeline to the Snapdeal promoters to nullify the Flipkart offer and try one more time to run Snapdeal as their company, rather than lose control over their baby.
Snapdeal and its round of fundings
For the record, Snapdeal was launched by Kunal Bahl and Rohit Bansal on 4th February 2010. Over the last 6 years, the company has received 11 rounds of funding in excess of $1.75 billion. The first round in January 2011 of $12 million came from Nexus Venture Partners and Indo-US Venture Partners. The second round of $45 million was raised in July 2011 from Bessemer Venture Partners, along with existing investors Nexus Venture and Indo-US. Round 3 of $50 million came from eBay, where Bessemer, Nexus and Indo-US also participated. Round 4 in February 2014, of $133 million funding was led by eBay, included Kalaari Capital, Saama Capital, Intel Capital and all current investors including, Nexus Venture and Bessemer. The fifth round in May 2014, worth $105 million came in through Blackrock, Temasek Holdings, PremjiInvest and others. Round 6 of funding in October 2014 brought in $647 million in fresh equity from SoftBank, making it the largest investor in Snapdeal. The seventh round in August 2015 raised investments worth $500 million in fresh capital from Alibaba Group, Foxconn and SoftBank. Three more rounds of funding took place till round 11 when $200 million came in, led by Ontario Teachers’ Pension Plan and Singapore based Brother Fortune Apparel. Surprisingly, as mentioned earlier, there was a recent twelfth round in May 2017 with Snapdeal receiving about $17 million from Nexus Venture Partners.
Snapdeal's acquisitions
Snapdeal was always fairly aggressive with acquisitions over the years. Grabbon.com was the first to be acquired in June 2011. esportsbuy.com was the next to be tucked in, in April 2012. A month later in May 2013, Shopo.in was acquired. Nearly a year later, in April 2014 Doozton.com became part of Snapdeal. In the winter of that year, in December 2014, gifting recommendation site Wishpicker.com was acquired. A month later in January 2015, product comparison site Smartprix.com was folded into Snapdeal. Again, just a month later in February 2015, luxury fashion products discovery site, Exclusively.in was bought by Snapdeal. In March 2015, Snapdeal acquired 20% stake in logistics service company, Gojavas.com. Again, later in the month, in March 2015, Unicommerce.com was acquired. In the same month again, RupeePower joined the Snapdeal family. The biggest acquisition of them all came in April 2015, with FreeCharge.com becoming a Snapdeal company. September 2015 saw the acquisition of Reduce Data, a programmatic advertising platform. August 2016 saw Snapdeal’s stake go up to 49% in GoJavas.
Snapdeal investors
Investors in the company include SoftBank Corp, Ru-Net Holdings, Tybourne Capital, PremjiInvest, Alibaba Group, Temasek Holdings, Bessemer Venture Partners, IndoUS Ventures, Kalaari Capital, Saama Capital, Foxconn Technology Group, Blackrock, eBay, Nexus Ventures, Intel Capital, Ontario Teachers' Pension Plan, Singapore-based investment entity Brother Fortune Apparel and Ratan Tata. SoftBank is by far the largest shareholder at 32.98%, Nexus is next at 9.71%, Kalaari at 7.81%, eBay at 6.32%, Foxconn at 4.03%, Alibaba at 2.93% and Temasek at 2.65%. Founders Kunal Bahl and Rohit Bansal hold 3.94% and 2.44% respectively.
Verdict
Verdict
In the final assessment, the jury is still out on whether what happened on the Snapdeal-Flipkart deal was good or bad. For founders Kunal Bahl and Rohit Bansal, this had become an ego issue, without doubt. To be consigned to the dung-heap of e-commerce history, a domain they had once been princes of, was not exactly their idea of an exit. A pay out of $15 million each to them also looked perhaps too measly an amount to promoters who had got used to multi-million dollar fund raises every so often. That promoters at Flipkart, Sachin Bansal and Binny Bansal, having been sidelined from day-to-day management, were not very far from the fate being meted out to them, perhaps was no solace to Messrs Bahl and Bansal. The duo wanted to retain charge of Snapdeal, come what may. The Flipkart deal had to die if Bahl and Bansal were to survive.
If SoftBank still had the aggressive Nikesh Arora at its helm, it could perhaps have bulldozed Nexus on the Snapdeal Board. Nexus’s negativity on the Flipkart offer, and its continued support to Bahl and Bansal finally killed the deal.
The fire-sale of FreeCharge eventually gave Kunal Bahl the elbow room to say good bye to Flipkart. Snapdeal 2.0 has frankly very little hope. Despite dizzy success in fund raising and acquisitions, Bahl and Bansal actually showed little acumen in the profitable running of operations of Snapdeal. As managers of a complex business, they would at best score a 3/10. Now with most of their top-deck having exited, chances of an operational turnaround to success and profitability look even more remote.
Nexus will try to bring in perhaps a brick and mortar player to bid for Snapdeal in the days to come. Rumours have it that everyone from Reliance to Tata to Future are all interested. Infibeam was supposed to be interested too at one time. But frankly none of them look good to make a $1 billion plus offer. Any case, till Deal 2.0 comes along, best of luck to Snapdeal 2.0. Who knows it may just succeed against all odds.
Sandeep Goyal is a business columnist, critic and commentator. He writes on a wide variety of subjects. He can be reached at sandeep@goyalmail.com
Disclaimer: Views expressed are personal. They do not reflect the view/s of Business Standard.