Snapdeal sale to Flipkart: Kalaari Capital comes on board
NEW DELHI: Kalaari Capital, an early investor in online marketplace Snapdeal, has given its assent to the proposed sale of the New Delhi-based company to rival Flipkart, according to two people aware of the negotiations, which if successful, will reshape the contours of the $16-billion Indian online retail industry where America’s Amazon and China’s Alibaba are also vying for primacy.
Japan’s SoftBank — the largest stakeholder in Snapdeal — has been pressing for a sale of its beleaguered portfolio company at an estimated price of $1 billion, but has faced resistance from early investors Kalaari and Nexus Venture Partners as the transaction pegs the value of Snapdeal far below its peak value of $6.5 billion, according to sources aware of the talks that have been underway for several weeks now.
“After sustained discussions, they (Kalaari Capital) are now on board… There is an understanding that they will work with SoftBank down the line,” said one person cited above. Talks between Nexus and SoftBank are also continuing.Read more ↓
As per the company’s shareholders agreement, SoftBank requires the consent of at least two major Jasper Infotech shareholders to push through a sale of the company. It is not yet clear whether Snapdeal’s founders — Kunal Bahl and Rohit Bansal — have agreed to the sale or not.
Separately, Flipkart — the country’s largest online retailer — may also bid for FreeCharge, the digital payments platform owned by Snapdeal, according to a second source, with an estimated sale price between $40 million and $75 million. People aware of the developments told ET that SoftBank’s proposed investment in Flipkart will not be contingent on the Bengaluru company buying out FreeCharge.
The proposed sale of Snapdeal to Flipkart will pave the way for SoftBank’s entry into India’s largest online retailer. As part of a two-step agreement, after the merger, the Tokyo-based investor will become a significant shareholder by making a substantial investment, expected to range between $1 billion and $1.5 billion.
Second major bidder for payments platform
Flipkart’s interest in FreeCharge makes it the second major bidder for the payments platform after Alibaba-backed Paytm. MobiKwik is also believed to be in the fray. Two other players who have looked at FreeCharge before, and remain dark horses, are US-based PayPal and Naspers-backed PayU, according to a person involved in the transaction.
“There is an offer, but it could take a few months for any deal to close,” said a source.
As reported by ET last week, Soft-Bank is also considering a sizeable investment in Paytm owner One97 Communications in a deal that could value the Noida-based company at over $7 billion. SoftBank, which has so far invested about $2 billion in Indian startups including ride-hailing app Ola, hotel room aggregator Oyo and hyperlocal commerce company Grofers, is aiming to shed some flab in its portfolio.
Kalaari, SoftBank, Flipkart and Snapdeal did not respond to emails seeking comment.
Kalaari’s decision to align with SoftBank is expected to go a long way in closing the deal with Flipkart, given the venture capital firm’s earlier reluctance to the deal.
Nexus and Kalaari together hold about 18% stake in Snapdeal and were believed to have been holding out for returns of around $70-100 million each.
While Kalaari has already cashed in $100 million from its investment, Nexus is yet to gain from its investment made in 2011.
If a sale of FreeCharge, once described as Snapdeal’s crown jewel by CEO Bahl, does go through at the purported price, it will be a steep fall in fortunes for a company that was bought in a cash-and-stock deal of about $400-450 million, making it the largest startup acquisition in India two years ago.
Even till late last year, the asking valuation of FreeCharge ranged between $700-900 million, but the promoters were unable to close a funding round, with multiple investors, such as PayPal, Foxconn and PayU professing interest, only to walk away.
Since January, Snapdeal has pumped in Rs 420 crore into the payments platform, according to documents filed with the Registrar of Companies, and as per data collated by Tofler, a leading corporate research and monitoring platform.
“It is getting to the (valuation) range where it (FreeCharge) becomes attractive, given its integrations, product, IP and active relationships with merchants,” said an executive who has looked at the transaction.