Online marketplace Snapdeal is close to buying its nearest rival ShopClues in an all-stock deal, two people familiar with the matter said, after the on-again, off-again talks fell through earlier following disagreement on its financial terms.
The deal is likely to see Shop-Clues investors get one Snapdeal share for every nine they hold if the merger goes through in this planned structure, and will likely give them a 10% stake in the combined entity.
“The ask from Shopclues is to get at least a 30% stake in Snapdeal as part of the transaction,” said one of the persons.
“The management and founders, Radhika Aggarwal and Sanjay Sethi, may get a small cash exit,” said another person aware of the developments.
The due diligence process is now on and a final decision is expected soon, they said.
RESURGENCE OF SNAPDEAL
The deal is expected to be a 100% buyout, with all of ShopClues’ investors, including Singapore’s sovereign wealth fund GIC NSE 1.48 %, Helion Venture Partners, Tiger Global, Nexus Venture Partners and Unilazer Ventures, rolling into Snapdeal, said a person familiar with the matter.
Nexus Venture Partners, an early backer of Snapdeal, is the common investor in both companies.
Snapdeal co-founder and CEO Kunal Bahl didn’t respond to queries, while a ShopClues spokesperson said the company would not comment on market rumours.
If the deal materializes, it will herald a big consolidation move in the long-tail ecommerce market, which has largely catered to small town customers, away from the core audience of established ecommerce companies Amazon and Flipkart. Products sold on long-tail marketplaces are low-priced, typically in Rs 500 to Rs 1,000 range.
Clues Network, which operates ShopClues, has so far raised $250 million and has seen its business shrink in the past year, relegating it to the number five position on the gross merchandise value, or GMV, chart.
Players in the ecommerce logistics space said ShopClues was hardly executing any orders presently. ET could not determine ShopClues’ exact order numbers. These executives in the logistics industry also said the Gurugram-based firm had become too much of credit risk for them to carry on doing business with the company.
Shopclues’ web and mobile web traffic has also fallen to 11 million in April from 16 million in November last year, a quick glance at SimilarWeb data revealed, while Snapdeal’s rose to 82 million from 68 million in the same period.
ShopClues has, however, reduced losses from Rs 210 crore in 2017-18 to less than Rs 45 crore in 2018-19, while maintaining its top line, its spokesperson said.
After a tumultuous year, Snapdeal has been slowly increasing its order numbers, which are now in the 250,000 per day range. Snapdeal’s recent resurgence and a notable bump-up in its order numbers after a failed merger attempt with Flipkart is significant, as its order numbers had fallen to as low as 30,000-40,000 daily.
In contrast, Amazon and Flipkart typically rack up 600,000 orders daily.
Apart from pruning costs, the SoftBank-backed company has also pulled itself out of heavily discounted categories such as smartphones, where Amazon and Flipkart are known to splurge big bucks. These cash-guzzling categories do not offer high margins, but help in racking up GMV.
“Snapdeal and Shopclues are trying to make a business in the long-tail category by selling items below Rs 900-1,000 with no promise of next-day delivery. This allowed them to tap into first time online buyers in tiers II and beyond cities in the past. But things may become more competitive after Amazon and Flipkart start chasing these markers,” said Satish Meena, senior forecast analyst at research firm Forrester Research.
Paytm Mall, as ET had reported earlier, has changed its business model with a focus on offline-to-online commerce instead of pushing its cashback-based strategy. Smaller e-tailers find it difficult to retain customers and increase their average ticket sizes, Forrester’s Meena said.
With the acquisition of Flipkart by US retailer Walmart last year, and Amazon’s focus on shifting beyond metropolitan areas and tier-II cities, these players may find it difficult to grow in 2019.
Source: Economic Times