The rise of online acquisitions

Online acquisition allows e-retailers to offer everything to customers.
The rise of online acquisitions

The latest news that has taken the online world by storm is the acquisition of Esportsbuy by Snapdeal. Looking back, we see that online acquisition has gradually gained momentum over the years, becoming the buzz word in online retail today. Before Esportsbuy, Snapdeal had acquired Grabbon. Flipkart, India's largest online bookseller, took over Letsbuy in a deal that involved around $25 million. The much known HomeShop18 had also bought Coinjoos while Infibeam’s had acquired Picsquare.

 
Acquisition deal
An acquisition merely refers to the purchase of a smaller company by a relatively bigger one. Usually firms that complement the brand and would strengthen the buyer’s capacity to serve customers will be the preferred target. The reason may simply be an attractive deal that may not be the die-hard need requirement, but still be attractive enough to bring about benefit to the buyer in the long run. The financial aspect of the deal would broadly divide the payment into cash and shares or stock.
 
Raison d'etre
The rat race for being on the top in the virtual world has begun with everyone looking at consolidating all facets into one. This consolidation would assure a path for bigger profits. “The acquisition opportunity came at a very attractive price for us and the timing was also ideal. The synergies will now allow us to accelerate faster and get to a share similar to what we enjoy in the online books category,” says Flipkart’s Co-Founder and CEO, Sachin Bansal.
 
How to take the plunge is the question. Abhimanyu Lal, Head-Category Management, eBay India, says, “If the target is attractive and the evaluation of ‘Build’ or ‘Buy’ can be identified, the decision becomes easier. Buy out leads to quicker expansion but costs more, whereas a build up takes longer but costs less. It is a strategic decision and after pondering over these aspects, the decision would depend on the outcome of the deal.”
 
Mutual benefit
Scaling up operations in terms of categories and customer base is a primary reason for an increase in online acquisitions. Increase in sales, profits, market share and increase in the economies of the scale are other factors aiding acquisitions. Affirming the same, Bansal says, “This acquisition fits into our strategy of building dominant shares in all categories we operate in. We are already leaders in the books and media verticals. Given that we managed to build a leadership position in consumer electronics as well since its launch in early 2011, it made sense for us to consolidate when we saw this opportunity.”
 
Also, online retailers can increase their reach to areas they don’t have presence in without risk and exhaustion of time and money. Grabbon bought this benefit along with it for Snapdeal’s expansion to Bengaluru, where it had a customer base of about 5,000 visitors each day.
 
The consolidation game, on the other hand, is proving beneficial for start-up web stores that are at a nascent stage as they get to associate with a big brand name. As they get access to the buyer’s back end, they can steer in the right direction. Also, finances that they wouldn’t have had access to otherwise, become available to them. Lal says, “They get the best exit option and a way out of money issues. Also, they get the advantage of partnering with bigger names in the business, which adds to their enterprise.”
 
Amazon effect
The entry of Amazon in India with Junglee has put everyone on vigil to ramp up their operations. As Amazon is a leader in the space, the biggies will work towards reaching at the same stature. Losing on a lot of time is not what they would be looking at, so acquisition seems to be the perfect answer. As Flipkart and Snapdeal made acquisitions after the entry of Amazon in the country, some speculate these to be the fallout of Amazon’s India entry. However, whether this is true or not is to be given a thought.
 
Win-win situation for customer
Today, retail is all about customer convenience. Acquisitions are also ultimately fulfilling that aspect. For a customer or a layman, it means access to greater products and brands at one halt. He doesn’t need to move to different e-shops if he wants to buy electronics, books or music. The umbrella of offering increases whilst they get an expertise of customer service. Letsbuy.com Founder and CEO, Hitesh Dhingra, says, “Aligning our business with the largest player in the market made sense as the resultant synergies will guarantee our customers the best possible service, price and selection.” Kunal Bahl, CEO of Snapdeal.com, adds, “Through this acquisition, we will be able to provide this wide assortment at great prices to Snapdeal’s 15 million members.”
 
End note
Will acquisition be the easy exit option for startups in the times to come? Or will acquisitions be a way for big e-retailers to cash in on the existing expertise and data base of smaller e-retailers? With the pumping of more funds in the industry, survival of smaller players will go for a toss. How the biggies will act on this is what we need to watch out for!
 
 
 
Acquisition
Deal
 
Aquirer Target Year Price Owners Category
Transaction
Terms
Snapdeal & Esportsbuy
Snapdeal Esportsbuy 2012
$9.8-13.7
million
Snapdeal:
Kunal
Bahl;
ESportsb
uy: Amit
Monga and
Prateek
Sports
Goods
Undisclosed
Snapdeal & Grabbon
Snapdeal Grabbon  2010 $3.5 million
Snapdeal:
Kunal
Bahl;
Grabbon:
Tony
Navin and
Jackson
Fernandez
 
 
Group
Buying
 
 
Cash and Equity
Flipkart & Letsbuy Flipkart  Letsbuy 2012
$20-30
million
Flipkart:
Sachin
Bansal;
Letsbuy:
Hitesh
Dhingra
Electronics Cash and Equity
HomeShop
18 &
Coinjoos
HomeShop18 Coinjoos 2011 Undisclosed
HomeShop
18:
Sandeep
Malhotra;
Coinjoos:
Nitin
Gupta
Music & Books Cash
Infibeam &
Picsquare
Infibeam Picsquare 2008 Undisclosed

Infibeam: Vishal Mehta; Picsquare:Manish Agarwal & Kartik Jain

 

Photo Printing Undisclosed
Flipkart &
Mime360
Flipkart Mime360 2011 Undisclosed
Flipkart:
Sachin
Bansal;
Mome360:
Sameer
Nigam
and Rahul
Chari
Digital
Media
Distribution
Stock & Cash
Flipkart &
WeRead
Flipkart WeRead 2010 Undisclosed
Flipkart:
Sachin
Bansal;
WeRead:
Lulu
Enterprise
s
Social Book
Discovery
Undisclosed
 

 

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