Ebay sells India business to Flipkart, In exchange for USD 500 Million
Ebay sells India business to Flipkart for a cash investment of USD 500 million in exchange for an equity stake in Flipkart.
Till date, this is the largest e-commerce deal in India and puts Flipkart on the global acquisition map.
Apart from this deal, Flipkart has raised USD 1.4 billion from Microsoft, Tencent and eBay at a post transaction valuation of USD 11.6 billion.
Pros for Flipkart:
1. Flipkart will acquire eBay buyers in India.
2. This will catapult Flipkart amongst its competitors in terms of market reach, global products and customers.
3. EBay investment of USD 500 million as a stakeholder will benefit Flipkart in terms of a partnership with a global e-commerce company and a strategic player that would allow both companies to accelerate and maximize the opportunity in India.
4. This deal has raised a ray of hope for investors and confidence has build up in the new management.
Red Flags for Investors:
1. Small investors has been theoretically marking down Flipkart from 2015 valuation of USD 15.5 billion to today’s valuation of USD 11.6 billion citing intense competition.
Morgan Stanley has also continuously markdown Flipkart for the last 5 consecutive quarters and as of March 2017 has valued it at USD 5.4 billion.
2. There is a lot of excitement buzzing with rumours of a possible deal with Snapdeal. But Snapdeal, another local e-commerce company with its share of troubles can bring in a heavy baggage of woes if Flipkart goes ahead to acquire it.
Implications on a possible future Flipkart IPO:
Currently it is too early to speculate as how this chain of events will affect its possible future IPO but:
1. Flipkart has to come up with a sustainable business model which eases the intense competition that plagues the e-commerce industry today.
2. It needs to prove in a short span of time the benefits of such large acquisitions to cement a solid confidence with its investors.
If Flipkart does not act on it seriously, it may end up jeopardizing its valuation during a possible future IPO.
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