[Exclusive] Due diligence started in impending Flipkart-Snapdeal merger; SoftBank may invest up to US$1B in new entity

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Although the deal is on course, Flipkart and Snapdeal are yet to resolve the differences about the employee stock options (ESOPs)

Struggling Indian e-commerce company Snapdeal is one step closer to signing a “distress sale” deal with Flipkart, with the former receiving terms sheet, a highly-placed source told e27. The due diligence has started, and SoftBank-backed Snapdeal has already sent the records (skill-set and job descriptions) of its key employees which it wants to retain post-acquisition to Flipkart, the person added.

The potential deal size is pegged at US$1 billion — a considerable drop from Snapdeal’s peak valuation of US$6.5 billion at the time of raising funding early last year.

Flipkart’s mobile payments unit FreeCharge, which it had acquired for nearly US$400 million in 2015, will be sold separately at 10 per cent of its then-valuation. As per an Economic Times report, Alibaba-funded m-commerce and digital payments major Paytm has already signed a non-exclusive term sheet to acquire FreeCharge, which is its rival.

Also Read: Meet the VC: Rahul Khanna of Trifecta Capital says India still suffers from a trust deficit

Snapdeal co-founders Rohit Bansal and Kunal Bahl will not join the combined entity post the deal, the person revealed. “All investors of Snapdeal are now on board with the decision, and their differences have been sorted out. As part of the deal, SoftBank is likely to inject up to US$1 billion in the combined entity. That said, it could still take months before the deal is sealed,” said the person cited above.

Although the deal is on course, Flipkart and Snapdeal are yet to resolve the differences about the employee stock options (ESOPs). The ESOPs will be settled by founders in their personal capacity, presumably as part of the due diligence, the person noted.

The source further shared that Snapdeal has already fired a significant number of its 2,800 employees, and has closed offices in several cities. The functioning of the product team has almost stopped and the business unit is now taking care of product development.

“Failure within the organisation happened on multiple fronts, including within the technology and product leadership with no real clear differentiation strategy. The company kept burning cash hoping to continue to raise funds and for some other various other reasons that are not clear. Eventually, the investors lost trust in the leadership and knowingly grounded the firm. Most of the company’s efforts to save the ship failed, with the demonetisation being the final nail in the coffin which led to a stagnant or a lower order volume for Snapdeal.”

Also Read: Paytm in talks to raise up to US$2B from SoftBank; looking to buy FreeCharge from Snapdeal

An email sent to Snapdeal’s Co-founder Kunal Bahl seeking comments did not elicit a response till the time of publishing this article.

When contacted, Paroma Roy Chowdhury, Vice President (Public Affairs) at SoftBank Group, declined to comment.

Founded in February 2010, Snapdeal was the second biggest e-commerce company after Flipkart until 2015. The company began to crash after the entry of Amazon, which ate into its market share to become a formidable force in the Indian e-commerce market. Over the past two years, Snapdeal kept losing market share to both Amazon and Flipkart, despite having invested significantly in branding and marketing.

To date, Snapdeal has raised about US$2 billion in investment, which included a US$627 million from SoftBank in 2014. Its other investors include Kalaari Capital, Nexus Venture Partners, BlackRock, Temasek, Foxconn, eBay, Premji Invest, Intel Capital, Bessemer Venture Partners, and Ratan Tata. Recently, eBay invested nearly US$500 million in Flipkart and sold its Indian unit to the Bangalore-based company.

Although it can be called a distress sale at best, Snapdeal is bringing some value to Flipkart. According to the source cited above, Snapdeal is still a formidable force in the north and north-east e-commerce market. The Snapdeal acquisition will help Flipkart to strengthen this market and take Amazon head on.

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The post [Exclusive] Due diligence started in impending Flipkart-Snapdeal merger; SoftBank may invest up to US$1B in new entity appeared first on e27.

Source: e27

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