When K. Vaitheeswaran founded, what is believed to be, India’s first e-commerce company in Fabmart.com, in 1999, few would have predicted that India’s ecommerce industry would grow to a USD 50 billion-plus industry in less than 20 years. Fuelled by a surge in consumerism made possible by rising average incomes over the past two decades, the ecommerce industry is, today, one of India’s fastest growing industries and one of its most attractive for foreign investors.
With strategic and financial investors from all over the world armed with vast reserves of cash to deploy, and eager for a piece of the pie, M&A in the ecommerce industry has become increasingly active. The recent multi-billion-dollar acquisition of Flipkart by Walmart stands as the world’s biggest ecommerce acquisition at a reported deal value of a staggering USD 16 billion. Interestingly enough, this acquisition, along with the acquisition by ecommerce giant Amazon of a part of India’s fourth biggest supermarket chain, more, from the Aditya Birla group, is pointing towards an increasing synergy between ecommerce and retail.
If one were to read the chapter on the growth of the ecommerce industry in India in more detail, it has been aided by a number of factors including technological advancements, data made affordable, and the government’s various policies pursuant to their Digital India campaign. Growth all around also means that the industry players are constantly looking to consolidate their position and ensure long-term growth and sustainability in an increasingly competitive market. Being a sector with stiff entry barriers, one of the most prevalent methods today of consolidation and branching out in the ecommerce industry is through the acquisition of smaller firms.
Flipkart is an interesting case study. It was founded in 2007 and focused primarily on consumables. It then acquired Myntra in 2014 and then Jabong in 2016 to strengthen its position in the fashion and lifestyle segment. Flipkart did not just eliminate competition for its own fashion and lifestyle activities, but also broadened its customer base, technical know-how and assets to give it an edge over global ecommerce giant Amazon in the online apparel and fashion segment, with Flipkart having a reported 39.5-percent market share compared to Amazon’s 31 percent. Flipkart itself has now been acquired by new India entrant and global retail giant Walmart.
Consolidation has also been seen across other segments of the ecommerce industry. A notable example of this is the Ibibo Group’s 2017 merger with Makemytrip group, both groups being leading players in the online travel aggregator business. Taxi aggregator stalwart Ola Cabs, in the face of increasing competition from its global rival Uber, acquired startup Taxi For Sure in 2015 for a reported USD 200 million to strengthen its position. After completing its recent USD 1 billion funding round led by tech investment giant Softbank, it acquired food delivery operator Foodpanda to offer competition to Uber’s corresponding venture UberEats.
Capital requirements for an increasingly cash-intensive industry are being met by global venture capital firms and investors. Recently, in addition to Ola’s USD 1 billion funding round, Berkshire Hathaway reportedly invested between USD 300 and USD 400 million in Paytm, India’s leading mobile payments platform, which already has substantial investment from the Alibaba Group. Makemytrip Group reportedly raised around USD 330 million from Naspers, Ctrip.com and other investors in 2017.
The significant growth and sustained investments in the Indian ecommerce industry have also attracted the sustained interest of the Indian government, which is seeking to find ways to regulate it without disincentivizing investment in a sector that is becoming increasingly appetizing for global investors and, consequently, a growing contributor to the nation’s coffers. The government recently released a draft ecommerce policy in a bid to regulate various aspects of ecommerce from foreign investment to data protection to competition issues. However, the policy has drawn severe criticism from various stakeholders, and latest reports indicate that the policy may need a substantial relook. Given the size and importance of the ecommerce industry, however, it is only a matter of time before the government puts in place a regulatory framework, although industry expectation is that the framework ultimately drawn up will remain industry-friendly.
The ecommerce industry in India has seen exponential growth in a relatively short period of time. The industry has now reached a phase where the established players in specific sectors are looking to consolidate their position, and achieve long-term success. With the industry showing no signs of stopping, one can expect many more big money deals in this sector in the near future.— YourStory