Mergers and Acquisition- Flipkart & Myntra

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Information about Mergers and Acquisition- Flipkart & Myntra

Published on September 4, 2016

Author: TusharSharma173

Source: slideshare.net

1. Mergers & AcquisitionsFlipkart & Myntra MAC- Project Report Tushar Sharma & Nishit Raj 4/5/16

2. Table of Contents Introduction............................................................................................................................................2 Objective of the Study............................................................................................................................2 What is 'Electronic Commerce - ecommerce?'......................................................................................2 Flipkart....................................................................................................................................................4 Myntra....................................................................................................................................................4 Fundings Flipklart...................................................................................................................................4 Myntra Funding......................................................................................................................................5 Flipkart company portfolio ....................................................................................................................6 Acquisitions by Flipkart..........................................................................................................................7 Philosophy behind the acquisition of Flipkart and Myntra.....................................................................7 Positioning ..........................................................................................................................................7 Gap Filling............................................................................................................................................8 Bargain Purchase ................................................................................................................................8 Diversification .....................................................................................................................................8 Short Term Growth.............................................................................................................................8 Undervalued Target ............................................................................................................................8 Need....................................................................................................................................................8 Why did Myntra get acquired by Flipkart? .............................................................................................9 From Mukesh Bansal...........................................................................................................................9 What is the structure of the deal?..........................................................................................................9 FACT FILE...............................................................................................................................................10 Stakes of Stakeholders.........................................................................................................................11 Financial Analysis .................................................................................................................................12 Observation & Analysis........................................................................................................................13 References............................................................................................................................................14

3. Introduction Mergers and Acquisitions speak to a definitive in change for a business. No other occasion is more troublesome, testing, or confused as a merger and securing. Moving over to the quickest developing and striking on the position of third biggest economy, Indian e-trade has advanced altogether in the most recent decade, and there are numerous parts of e-business like Tele shopping, internet shopping and portable, which are all part of what is computerized business took after by Flipkart.com, Snapdeal.com, Jabong.com and Myntra.com; real players on the ground. One of the greatest names in the Online Retail Industry and a main e-Commerce player in the Country; Founded by Sachin Bansal and Binny Bansal in Bangalore, Karnataka in 2007.Which was begun with starting capital of 4 lakh contributed by the authors, stockrooms, workplaces and conveyance focuses crosswise over India. With more than 17.5 million book titles recorded, 16 unique classifications, more than 4 million enrolled clients and offer of 55000 things a day their operations are just enormous. Had 8600+ workers till December 2013. Had a monstrous income of around 6,100 Crores. Then again India's biggest design e-tailer Myntra is going for a valuation of 2,400 crore. Objective of the Study 1. To study the philosophy behind the acquisition of Flipkart and Myntra. 2. To study the future of Indian e-commerce industry. What is 'Electronic Commerce - ecommerce?' Electronic trade (ecommerce) is a sort of plan of action or fragment of a bigger plan of action, which empowers a firm or individual to direct business over an electronic system, normally the web. Electronic trade works in every one of the four of the real market sections: business to business, business to shopper, buyer to purchaser and customer to business. It can be considered as a more propelled type of mail-request buying through an inventory. Any item or administration can be offered by means of ecommerce, from books and music to budgetary administrations and plane tickets. Indian e-commerce market is pegged at over $2.5 billion currently and is expected to grow to a whopping $20 billion market in the next five years.

4. Source: IAMAI Source World Bank, IAMAI, Aranca Research Source CRISIL 2014

5. Flipkart Flipkart is an e-business organization established in 2007 by Sachin Bansal and Binny Bansal. The organization is enlisted in Singapore, however has its central station in Bangalore, Karnataka, India. Sachin and Binny are graduated class of the Indian Institute of Technology Delhi. They worked for Amazon.com, and left to make their new organization consolidated in October 2007 as Flipkart Online Services Pvt. Ltd. Myntra Myntra is an Indian e-business organization of style and easygoing way of life items, headquartered in Bangalore, Karnataka, India. The organization was established in 2007 by Indian Institute of Technology graduates with an attention on personalisation of blessing things. Myntra work through a mind boggling plan of action wherein Myntra Designs Pvt. Ltd. Fundings Flipklart

6. Myntra Funding In October 2007, Myntra got its underlying subsidizing from Erasmic Venture Fund now known as Accel Partners, Sasha Mirchandani from Mumbai Angels and a couple of different financial specialists. In November 2008, Myntra raised just about $5 million from NEA- IndoUS Ventures, IDG Ventures and Accel Partners. Myntra brought $14 million up in a Series B round of subsidizing. This round of speculation was driven by Tiger Global, a private value firm; the current financial specialists IDG Ventures and Indo-US Venture Partners likewise put in significant sum towards subsidizing Myntra. Towards the end of 2011, Myntra.com brought $20 million up in its third round of subsidizing, again drove by Tiger Global. In February 2014, Myntra raised extra $50 Million (Rs.310 crore) subsidizing from Premji Invest and couple of other Private Investors.

7. Flipkart company portfolio

8. Acquisitions by Flipkart  2010: WeRead, a social book discovery tool.  2011: Mime360, a digital content platform company.  2011: Chakpak.com, a Bollywood news site that offers updates, news, photos and videos. Flipkart acquired the rights to Chakpak's digital catalogue which includes 40,000 filmographies, 10,000 movies and close to 50,000 ratings. Flipkart has categorically said that it will not be involved with the original site and will not use the brand name.  2012: Letsbuy.com, an Indian e-retailer in electronics. Flipkart has bought the company for an estimated US$25 million. Letsbuy.com was closed down and all traffic to Letsbuy has been diverted to Flipkart  2014: Acquired Myntra.com in an estimated ₹ 20 billion (2,000 crore, about US$319 million) deal.  2015: Flipkart acquired a mobile marketing start-up Appiterate as to strengthen its mobile platform. Philosophy behind the acquisition of Flipkart and Myntra. As India's gathering of online clients grows, so will the routine and online players that make splendid and key moves to value the noteworthy offer by streamlining operations for advantage. The essential thought behind any merger and acquirement is to get high ground in overall market and revive association's advancement particularly exactly when its advancement is constrained as a result of lack of advantages. For entering in new thing/showcases, the association may require concentrated capacities and might require novel showcasing capacities and a wide allocation framework to get to different segments of market. The joining or merging of the two associations makes additional regard which we call "agreeable vitality" esteem.Synergy quality can take three structures: 1. Revenues: By combining the two companies, we will realize higher revenues then if the two companies operate separately. 2. Expenses: By combining the two companies, we will realize lower expenses then if the two companies operate separately. 3. Cost of Capital: By combining the two companies, we will experience a loweroverall cost of capital. Many mergers are driven by the need to cut costs. However, the best mergers seems to have strategic reasons for the business combinations. These include: Positioning- Exploiting future open doors that can be abused when the two organizations are joined. For instance, an information transfers organization may enhance its position for the future if it somehow managed to claim a wide band administration organization. Organizations need to position themselves to exploit rising patterns in the

9. commercial center. Gap Filling- One organization might have a noteworthy shortcoming, (for example, poor circulation) though the other organization has some critical quality. By joining the two organizations, every organization fills-in vital crevices that are key for long haul survival. Bargain Purchase- It may be cheaper to acquire another company then to invest internally. For example, suppose a company is considering expansion of fabrication facilities. Another company has very similar facilities that are idle. It may be cheaper to just acquire the company with the unused facilities then to go out and build new facilities on your own. Diversification- It might be important to smooth-out profit and accomplish more steady long haul development and productivity. This is especially valid for organizations in exceptionally develop businesses where future development is impossible. It ought to be noticed that conventional money related administration does not generally bolster enhancement through mergers and acquisitions. It is broadly held that financial specialists are in the best position to enhance, not the administration of organizations since dealing with a steel organization is not the same as running a product organization. Short Term Growth-Management may be under pressure to turnaround sluggish growth and profitability. Consequently, a merger and acquisition is made to boost poor performance. Undervalued Target- The Target Company might be underestimated and consequently, it speaks to a decent speculation. A few mergers are executed for "monetary" reasons and not vital reasons . Denoting the above clarification Flipkart which began with online book shop like Amazon and now offers items crosswise over classes, including design and gadgets. It now likewise offers white products and furniture. It hit the billion-dollar point of reference in yearly gross stock esteem a month ago. In this manner Fashion, which conveys more than 35% in working edge, is among the most challenged classifications in ecommerce and has seen the development of players like Jabong, Fashionara and Limeroad and even web-just brands like Yepme and Zovi. The number is developing each month and on track to develop between 100-150 for every penny over next 3-4 years. The general Lifestyle class in India is $45 billion, developing at 16% CAGR. The business will cross $100 billion in 2015 with some place between 5- 10% of this being on the web. Need According to the Economic Times, Flipkart loses Rs 70 crore a month while Myntra is not just bleeding but also rapidly losing market share to competitors like Jabong and other fast-rising fashion e-tailers. In 2013, Flipkart lost Rs 281 crore (US$47 million) on revenues of Rs 1,180 crore (US$197 million) while Myntra lost Rs 134 crore (US$22 million) crore on revenues of Rs 212 crore (US$35 million) Which is why, combining forces—in other words, sharing a logistics and technology backbone, as well as customers—will stem that tide to some extent, is the thinking.

10. Flipkart moved to commercial center model in feb 2013 where outsider traders offer products to customers through flipkart site. It permits e-trade organizations to scale up quicker and spare stockpiling and other stock related expense as the items are held by vendors. For Flipkart, setting up a tremendous design vertical means boosting edges, since style has the most astounding edges 35 to 40 for each penny among all items sold on the web. Myntra has enormous arrangements with its private brands like Anouk, Dress berry and Roadster, which guarantee edges as high 60 for every penny. Myntra will keep on working as a different brand, and its author Mukesh Bansal will possess a seat on Flipkart's board, heading all design at the new element. Flipkart will acquire its capacities in client administration and innovation. Both organizations will likewise net clients that have shopped on both entryways around 80 for each penny of the nation's online customers have shopped on either Myntra or Flipkart. Be that as it may, the organizations won't incorporate the back end. The two groups will likewise work independently. Why did Myntra get acquired by Flipkart? From Mukesh Bansal “We started with personalization of merchandise and then pivoted to fashion. In the last seven years, we have taken the online fashion retail to a different level. We are not only the leaders in this segment, but have built a very unique differentiation. We are among the top sites in terms of online traffic, and are focused a lot on building deep relations with the brand we work with. We have even made some brands household names. Overall, we have enjoyed this ride and wanted to take fashion to an altogether different level. In the last few months, we’ve had a number of meetings to see how we can do this together. We wanted to exploit our mutual synergies (like the technology at Flipkart and market leadership of Myntra) in order to accelerate our growth.” What is the structure of the deal? It was 100% securing in an expected Rs 2,000 crore bargain. The arrangement was affected by two huge regular shareholders, Tiger Global and Accel Partners. As a component of the securing, Myntra fellow benefactor Mukesh Bansal will join Flipkart's board and will likewise supervise Flipkart's style business. Flipkart and Myntra will stay as two separate substances, however individuals holding investment opportunities in Myntra will now hold the same in Flipkart. Mukesh Bansal said” "We will retain the same management team at Myntra. Neither employee roles nor the company's road map will change. The idea is to maintain distance between the two businesses

11. and preserve a unique culture," said Mukesh Bansal. "Both companies are running at a very fast speed and winning on the competitive landscape. So we don't want to change that at all," Binny Bansal: This acquisition is all about scaling up fast and we really think that the future of e-commerce is fashion and we can jointly build it faster. We saw this as an opportunity to accelerate our roadmap; things that would have taken us five years to achieve, we will now achieve in two to three years. Mukesh Bansal: Last few months I have spent a lot of time with Sachin and Binny and grown to respect what Flipkart has done. And I got convinced that if we come together and work as one entity, it will be a game changing equation in the Indian e-commerce space. It will be in the interest of both companies to work for the combination, rather than growing individually," says PwC's Ladda. However, achieving cost efficiency is not yet a concern for Flipkart. As Sachin Bansal puts it: "Cost synergies are not our priority for this acquisition. It was about scaling the two businesses in much faster to expand market share in fashion." FACT FILE of the Myntra-Flipkart deal:  It’s a 100% acquisition. The current investors in Myntra remain so and there’s no exit taking place.  Myntra continues to function as an independent entity and so does the fashion division of Flipkart.  Only Mukesh Bansal from Myntra joins the Flipkart board. He’ll head the fashion business for Flipkart.  All the Myntra employees get the universal stock options.  $100 million to be invested in Flipkart fashion business in coming years.  Together, Flipkart and Myntra will have over 50% share in the online fashion market in India (Myntra’s current share is ~30%).  There are no immediate plans of integrating the duo but the possibilities will be explored in near future.  There are enough funds with Flipkart to sustain for long, hence there are no immediate plans for next round of funding.  Flipkart is definitely eyeing for an IPO but not the priority as of now.  Flipkart plans to go Alibaba way rather than the Amazon way due to more similarities in between Indian and Chinese consumers.  There’s no threat to Myntra’s online fashion dominance by Amazon.  Flipkart aims to grow its fashion/apparel business to an extent that it accounts to 30% of their revenue shares.  Key stakeholders in Myntra have become millionaires with this deal.  Myntra continues to hire and expand. Have global ambitions as well.

12. Stakes of Stakeholders 29.5% • Tiger Global 18.4% • Inversion Service Holdings (Nasper) 11.5% • Accel Partner 8.7% • Binny Bansal 8.7% • Sachin Bansal 23.2% • Others

13. Financial Analysis 2015 2014 2013 Flipkart Myntra Flipkart Myntra Flipkart Myntra Net Sales 9351.75 2804.95 441.58 1180.07 213.06 Total Income 9536.74 2946.13 441.58 1180.07 213.06 Total Exp 10319.53 3228.28 606.43 1366.27 341.49 PBIDT -782.79 -382.15 -164.85 -186.2 -128.43 PBIT -822.23 -400.12 -172.84 -281.73 -134.2 PBT -836.51 -400.36 -172.84 -281.73 -134.2 PAT -836.51 -400.36 -172.84 -281.73 -134.2 In Cr INR -2000 0 2000 4000 6000 8000 10000 12000 Flipkart Myntra Flipkart Myntra Flipkart Myntra 2015 2014 2013 Chart Title Net Sales Total Income Total Exp PBIDT PBIT PBT PAT

14. Observation & Analysis After the merger of Flipkart and Myntra in May 2014 there has been a reason to cheer by the stake holders. The number of registered users have increased by 30.7%, Daily visits by 32.6%, the number of sellers on the platform by 3.2% and team strength has increased by 16.6%. The revenue of the company after merger has soared to 1.5 Billion USD. However, the financials of the company as a whole after merger doesn’t seems to be promising. PAT for the company as per 2015 is 836.51 Cr whereas the revenues have crossed 1 billion USD mark. -100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% Net Sales Total Income Total Exp PBIDT PBIT PBT PAT CHART TITLE 2015 Flipkart 2015 Myntra 2014 Flipkart 2014 Myntra 2013 Flipkart 2013 Myntra

15. References http://www.thehindu.com/features/magazine/the-flipkart-story/article3290735.ece http://www.investopedia.com/terms/e/ecommerce.asp https://en.wikipedia.org/wiki/Flipkart http://timesofindia.indiatimes.com/tech/tech-news/Flipkart-acquires- Myntra/articleshow/35472797.cms http://yourstory.com/2014/05/flipkart-myntra-acquisition/

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