An investor's mind can defy the best of commentators. This is not a one-liner from an erudite economist, but the reality which is playing out in e-commerce space. So far (before the Snapdeal-Flipkart rumour happened), experts, analysts and consultants very wisely predicted that Snapdeal and Paytm will be merged as they have a common investor in Alibaba who was looking to enter India.
But with Alibaba gone silent, it is super investor Softbank (which has a stake in Alibaba as well) that is calling the shots. Be it the Flipkart-Snapdeal or Paytm-FreeCharge, Softbank is actively negotiating for both the deals.
Most of the experts believe that a Flipkart-Snapdeal deal makes little sense operationally. As there is a significant overlap in the customer and seller base of the two companies. Moreover, when it comes to customer acquisition, Flipkart’s real rival continues to be Amazon, and a potential Snapdeal acquisition is unlikely to ease the burden.
"A Flipkart-Snapdeal merger helps consolidate the e-commerce market and nothing else. There was no space for a third player in the e-commerce space and if Flipkart has to pose a formidable challenge to Amazon, this was sort of imperative. Softbank will stand to gain from both the deals," said Neha Khanna, director at Valpro Consulting, a firm that advises startups and investors.
Flipkart's previous acquisitions of Myntra and Jabong were also done to consolidate its position in the fashion segment. And it did work. Jabong not only came at a cheap valuation, it has helped strengthen Flipkart's overall fashion portfolio.
The other big deal that is rumoured to alter the e-wallet landscape is Paytm-FreeCharge. With FreeCharge's parent company veering towards Flipkart, the second largest e-wallet player seems to have found a saviour in Paytm.
Snapdeal had bought FreeCharge for $400 million in one of the largest deals in the Indian consumer internet space in mid-2015. But for the past one year, it was struggling for funding in the wallet business.
Even in this case, experts do not see any major gains to come from FreeCharge acquisition, but it will help Paytm consolidate its position in the wallets space. This will also mean that Paytm will have one less competitor to deal with.
Softbank is behind both the deals as it will help the Japanese investor get a significant equity in both the companies.
Khanna of Valpro believes that the spate of consolidation will continue in the market as investors are tightening purse strings. "Cash starved companies will prefer to be bought out than going bust", she said.