FLIPKART & Myntra Mergers

1. Analysis of Flipkart-Myntra Deal

In the largest e-commerce deal in India so far, homegrown e-retailer and marketplace owner Flipkart has
acquired online fashion retailer Myntra in an estimated Rs 2,000 crore deal.
Flipkart has been good at replicating established models and strategies. Flipkart founders - Bansals- were
ex-Amazon employees and started Flipkart selling books online - just what Amazon did in its early days.
Even in case of acquisition of Myntra, the strategy is the same as that of why Facebook acquired
WhatsApp - kill competition.

Fashion & Apparel has the largest potential in the e-commerce space and India is set to become the
largest E-commerce market in the world - in terms of volume. As the urban (metro, Tier I and Tier II)
population is getting more awareness and is getting exposed to E-commerce, India is slowly increasing
its online spend. Apparel has been slow (it all began with books, to gift items to electronics - and now
apparel) but has huge potential.
Myntra has been a forerunner in the apparel e-commerce space and Flipkart was still languishing behind
in books and electronics. Acquiring Myntra is a good strategy as it sets to compete better with the likes
of Amazon and E-Bay in the e-commerce space in India. The deal size is pegged at close to Rs 2000 crore
(according to sources and media - official data not found). Some synergies:Flipkarts and Myntras
common investors Tiger Global Management, Accel Partners and Sofina Capital will get more shares in
the merged entity. Tiger Global and Accel Partners first proposed the deal last year.
Myntra sells products from over 650 brands like Nike, HRX by Hrithik Roshan, Biba and Steve Madden.

Myntra has a last-mile delivery network covering 70 cities, while Flipkart's network covers 250 cities
and towns. In a few months Myntra will also start identifying and using technology solutions created by
Flipkart, especially in the mobile space. Flipkart has already started expanding its presence online - 40%
of sales come through Mobile already. Myntra founder Mukesh Bansal would join the Flipkart board and
would head the Fashion and apparel business.

Valuation Flipkart's investors have been encouraging as they have helped Flipkart compete with the
global giants in India. Fortunately Flipkart hasn't disappointed them so far It has already reached $1
billion of annualised sales though the target was for 2015. Myntra clocked revenue of about Rs 1,000
crore in the previous financial year.
Considering the estimated deal value, Rs 2,000 crore is only 2x historical Revenues which is reasonable
considering the potential and this being a private deal influenced by common PE investors.

Reasons why Flipkart and Myntra merged
They are among top players in Indias e-commerce space. With investments pouring in, what led Flipkart
and Myntra to merge operations while deciding to stay independent? The reason is clear: to combat the
threat being posed by foreign online retail competitors like Amazon and eBay and domestic rivals like
Snapdeal and Jabong. While the government is contemplating allowing foreign investment in
ecommerce, the need to race ahead was surely felt by the two.

Experts point out that Myntras strength in high-margin fashion and lifestyle category also made Flipkart
make a merger offer to the former. Flipkart has had limited success with the apparel and fashion
accessories segment compared to Myntra, which has been aggressively pursuing the fashion business by
bringing international labels as well as tying up with designers and launching private brands. Flipkart and
Myntra together generate more than 50 percent of the online fashion sales and the companies aim to
increase that number to 60-70 percent over time.

Another strong similarity between the two is common investors. US hedge fund Tiger Global and
venture capital firm Accel Partners hold significant shares in both the companies. And both also pushed
Flipkart and Myntra to merge. Tiger and Accel together own 53 percent shares, while IDG Ventures and
Kalaari have a combined stake of 28 percent in Myntra. In Flipkart, the two common investors (Tiger &
Accel) together hold around 40 percent stake.

And last but not the least, another common factor between them is surname of their owners. While
Sachin Bansal and Binny Bansal launched Bangalore-based Flipkart in 2007 that has seen around Rs 6,100
crores in sales, half the industry total and aims to record sales of 1 billion dollars (over Rs 6,000 crores) by
2015, Bangalore-based Myntra Designs, founded by IITian Mukesh Bansal has seen its profits range from
30 to 50 percent. He moved to India to start Myntra in 2007 and the company was targeting sales of Rs
1,500 crores next fiscal from apparel sales alone.

2. This Flipkart-Myntra deal is the countrys first sizeable consolidation
in e-commerce; a market estimated at 2 billion dollars (Rs 12,000 crore) of the organized retail pie of 40
billion dollars (Rs 2.4 lakh crore) and a total sector size of 600 billion dollars (Rs 36 lakh crore). E-
commerce could cross 20 billion dollars a year in India in the coming few years, according to analysts.
3. Industry consolidation is the process when a few companies start buying up other companies in the
same industry and the number of competitors in that industry shrinks dramatically. The main goal of
the consolidators is to grab market share, cut costs, boost productivity and improve investment returns
through scale economies.
4. Will the fashion retail teams at Myntra and Flipkart now see a consolidation?
Never. Post-merger we have a clarity that the businesses have to be executed independently and
preserve a different culture. Independently we see both Myntra and Flipkart's fashion category as billion
dollar businesses each in two-three years. While Myntra's fashion offering continues to be more on the
premium side. Flipkart offers an array of discounted fashion brands.
5. Should the new government allow 100% FDI in e-commerce as advocated by Amazon and Walmart?
Between Myntra and Flipkart, we are in a position (with the new investments), that we can take on any
big foreign entrant. But the next 10 entrepreneurs in India's e-commerce industry may not stand a chance
if a dozen foreign entrants are allowed to set up shop. For any emerging country, the government should
give some time for the indigenous companies to emerge.
6. Has your vision for Myntra changed after its acquisition by Flipkart and latest funding?
At Myntra, we have started to think long-term as now (with large funding) we can afford to take long-
term risks. About 60% of the investors had become common on both ends. And unless we could see the
value in the merger, we did not pull the trigger. Myntra's vision has got more realistic.

7. What have been the learnings from your entrepreneurship journey?
A strong founding team and great chemistry is very important. One needs at least four-five years to prove
oneself as an entrepreneur. Within one-two years, you will most likely look like a failure. One should set
himself up to go through a series of failures and be prepared for a long haul. One should be very clear
about the business model the market size and the USP of the offering, even though it will get changed
over time
8. Where do we see Mukesh Bansal after Flipkart goes public?
I see myself at Myntra for at least the next four-five years. IPO is not an immediate focus for Flipkart. Of
course, it may happen one day. The focus for us is to create an extremely differentiated experience for
our users. Any kind of financial exit will just be a reward on top of it.

9. Has starting up in India become easier? Before starting Myntra, I used to visit India very often as part of
startups I was working with. The more I came here, the more I got convinced that India held great
potential. When I moved back to India in 2007, the biggest hurdle I faced was recruitment. Everyone
wanted to work for a big MNC like an IBM. The trend is now reversed as talented people want to work
only for startups
10. Flipkart, sitting on the recently raised $360 million cash, is aggressively pushing for organic and
inorganic growth, as it looks to hit $1 billion sales possibly within this year.
11. "A deal between the two makes good business sense as it won't be easy to surpass this combination in
the domestic online fashion. But a merger may be loaded against the interest of Myntra's founders who
built an innovative and experiential brand with a distinct identity," said Deepak Srinath of Allegro
Capital, who advises internet startups on fund-raising.
12. US hedge fund Tiger Global and venture capital firm Accel Partners are the two common investors,
holding significant shares in Flipkart and online fashion specialist Myntra.
13. The e-commerce business in India is valued at $3.1 billion, excluding travel services and tickets,
according to a November report by CLSA.
14. Mergers are risky and integration can be very dicey, Myntras CEO Mukesh Bansal said in an interview.
So it was very important for me to ensure that we would not be integrating anything. Most of the
discussions were to ensure that there is absolute alignment about the management autonomy. Flipkart
has agreed to keep Myntra (pronounced Mint-rah) as a separate entity that will retain its website and
continue to be led by Mukesh Bansal, co-founder Ashutosh Lawania and the rest of the current
management team.