Friday 24 April 2015

Banks bugged by 'Kunal calling Kunal' syndrome in e-commerce M&A

When Snapdeal acquired Freecharge, investment banks lost an opportunity to participate in India’s largest e-commerce transaction with an estimated valuation of $400 million (Rs 2,480 crore). Banks did not get a chance as Kunal Bahl, CEO and co-founder Snapdeal, called Kunal Shah, founder and CEO Freecharge, to discuss the deal and managed to seal it in record three weeks.

“I knew Kunal Bahl for eight years. We did not feel it necessary to involve investment bankers as we have been doing business together for some time,” says Kunal Shah in a matter of fact way. Also, Shah did not feel the need as his investors such as venture capital fund Sequoia were quite supportive. “They made this a breeze when there was alignment between the two founders,” he says.

In the rapidly evolving e-commerce industry, the M&As are based on existing investors or entrepreneurs identifying synergy with other similar companies and then driving the transaction based on business rationale or a common vision of evolution of the business. “Companies are evolving or pivoting so fast that before a third party adviser can get a true understanding of the strategic needs of a business – entrepreneurs or anchor investors are able to identify and act upon the strategic rationale that drives mergers,” says Gaurav Mehta, head of investment banking at global investment bank UBS in India.

M&A transactions in the e-commerce space has witnessed rapid growth since last year. The year so far has seen 34 transactions, up from 46 acquisitions in 2014 as per the data provided by Tracxn that specialises in tracking the start-up ecosystem. Kaku Nakhate, country head, Bank of America Merrill Lynch (BofA-ML) in a media interaction admitted to have changed her mind seeing the momentum in the e-commerce segment. The firm is believed to be building capabilities to cater to the demand specific to the industry.

While the global bulge bracket are missing from the M&A space in e-commerce, home grown investment bank Avendus has turned more agile, advising TaxiforSure in their acquisition by Ola early this year for about $200 million (Rs 1,240 crore).

However, these global banks seem to be more hooked to the industry when Indian e-commerce industry is looking for fund raising in private or public space. Citi helped mobile commerce firm Paytm raise $575 million from Ant Financial Services, a part of Chinese e-commerce giant Alibaba. Earlier Deutsche Bank advised Qatar Investment Authority (QIA) for picking up $150 million stake in Flipkart when the most valued India e-commerce company raised $700 million from investors in December.
“We believe that we can bring our strong domain knowledge and global network of corporate and institutional investors to add value in capital raising and other strategic activities for our clients in the e-commerce space in India,” says Madhur Deora, managing director, investment banking, Citi India. The banks have been quite active when it comes to public fund raising by these ventures. It led the IPOs of Info Edge in 2006 and Just Dial in 2013, also MakeMyTrip's follow-on offer in 2014.

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