BENGALURU: From being the fourth internet company in India to cross the $1 billion valuation to struggling to stay afloat, e-commerce firm ShopClues has had a rocky two years.
Rival Snapdeal is currently conducting due diligence to acquire ShopClues at a valuation of around $200-250 million, according to multiple people familiar with the matter. If this deal fructifies, it will mark consolidation in the Indian e-commerce sector, which saw its biggest online retailer Flipkart being bought out by Walmart last year.
Online media platform Entrackr reported on 9 April that ShopClues was in talks to get acquired by Snapdeal. Both ShopClues and Snapdeal did not respond to queries sent by Mint as of press time.
On the positive side, it will not only help ShopClues find a home since it has been struggling to raise funds for a long time now. Moreover, it will mark Snapdeal’s first acquisition after it re-focused its business to unbranded categories with Snapdeal 2.0, after its talks with to get acquired by Flipkart fell through in 2017. Previously, Snapdeal had acquired fintech company Freecharge, which it sold off to Axis Bank.
While the deal may take a few months to fructify if the due diligence goes well, this deal will allow ShopClues’ investors to pick up a 10% stake in the combined entity, while the the founders will exit the company. The investors of ShopClues includes the likes of Tiger Global, Unilazer Ventures, Helion Venture Partners Singapore’s GIC and Nexus Venture Partners. Nexus is the common investor between the two companies and the one that initiated this deal, said the people cited above.
“Snapdeal currently only has equity and no preference shares, unlike ShopClues, where the structure is different," said one of the persons familiar with the transaction details. “So, the investors will get a stake based on what their rights are -- but that’s something the ShopClues board has to figure out."
However, several former employees of the two companies, investors and analysts that Mint spoke wonder if the acquisition makes economic sense for the founders and the employees.
Until 1.5 years ago, ShopClues had close to 1,100 employees. However due to the internal tussle, the company started witnessing a downfall, according to multiple former employees Mint spoke with. Both ShopClues and Snapdeal currently have each around 700-750 employees. If this acquisition goes through, industry experts believe Snapdeal does not have the capacity to absorb such a high number employees.
“ShopClues had a good opportunity to tap into small towns and cities with unbranded products," said one of the former employees cited above. “But, the company couldn’t capitalise on it. The money crunch led to a drop in marketing expenses, salaries did not go up for two years -- things started spiralling down."
“The only advantage I see for Snapdeal is that they can now have Tiger Global as their investor, who has now become active in the Indian market," concluded an investor familiar with the two companies, requesting anonymity.
