FLIPKART-MYNTRA

ACQUISITION

CONTENTS

1. Merger and Acquisitions

2. E-commerce Industry in India
3. E-business Model
4. Flipkart Pvt Ltd
5. Myntra.com
6. Flipkart-Myntra
7. Conclusion

1. Merger & Acquisitions

Both these terms are aspects of corporate finance, strategic management

and companies dealing with buying, selling and combining two or more
different companies and similar entities that can help a company grow at a higher rate in its
existing industry or a new industry or location, without creating a subsidiary to run the
added operations. M&A result in restructuring of an organization with an aim to increase
growth rapidly. The process is very complex, with many dimensions influencing the
outcome. Whether the purchase of a company is perceived as being a "friendly" or a
"hostile" one depends significantly on how the proposed acquisition is communicated to and
perceived by the target company's board of directors, employees and shareholders.
In an acquisition, both companies may continue to exist. However, in a merger he acquiring
company continues to do business whereas the acquired company gets integrated into the
acquiring company and thus ceases to exist after the merger. As a result of either merger or
acquisition, companies get access to new markets and industries that were previously
unaccessible due to cost, regulations or indirect barriers like the ability to create resources
such as capital, knowledge and labor. Challenges come from foreign competitors entering the
domestic markets and from local competitors reducing their product or service costs through
global sourcing, moving operations offshore or gaining economies of scale by venturing into
new markets. Globalization requires firms to become more streamlined and efficient while
simultaneously extending the geographic reach of their operations.
Thorough Planning and execution are essential for a successful strategic alliance. Integration
is reached only after mapping the processes and issues of the companies to be merged. Even
then just 23% of all acquisitions earn their cost of capital. When M&A deals are announced,
a companys stock price rises only 25% of the time. In acquired companies, 44% of
executives leave within the first year, and 70% leave within the first three years. Synergies
projected for M&A deals are not achieved 65% of the time. Productivity of merged
companies can be affected by up to 40% in the first year and financial performance of newly
merged companies is often lacking. Using the Internet for transactions and coordination can
save time and money on delivery of goods by using rich information flows to simplify and
streamline the flow of goods in the supply chain.

2. E-Commerce Industry in India

The internet market in India is unique and huge. Already with a user base of 190mn users, it
has exponential growth opportunities in terms of participation and penetration. The internet
market in India is driven by
Bandwidth
Content
Increasing disposable income
Increase use of plastic money.
Its evident that internet businesses have strong growth and cash flows and that Internet
businesses will soon gain relevance in equity markets as commercial businesses scale up.
The two key business models for internet are
Online retail Where leaders like Flipkart have high user engagement though facing
intense competition from peers with increasing reach such as Amazon and E-bay.
Advertising which has strong growth potential due to increasing internet reach and
increase in customer reach by corporates.
From a business perspective, the Indian internet market is dominated by online travel with air
travel being the key contributor followed by railway and hotels. Other key businesses like
online retail were then added to indias internet market.
The Indian e-commerce industry was worth INR75,000 crore, in 2013, according to a joint
report by KPMG and IMAI. India holds the potential to double its economic contribution via
Internet, from 1.6% GDP at present to 2.8 and 3.3% by 2015. Indian internet industry is also
likely to generate employment for 1.45 million people in the coming two years. With the
emergence of the new government and its innovative policies, there are hopes of bringing
FDI in e-commerce for local marketplayers. Marked as the biggest coming together of two
internet giants in the e-commerce space in India, this report puts light on Flipkart and fashion
e-tailer Myntra M&A which jointly exposes their vision to acquire more than 50% e-market
share by strategic alliance. As Flipkarts annual sales crossed over INR6,100 crore a year
ahead of the set target which was it was estimating to reach the billion dollar mark for gross
merchandise value by 2015; on the other hand Myntras revenue was about INR1,000 crore
in the previous financial year. Myntra is aiming to increase its revenue in the next financial
year as it expands its customer base and is adding more products following Chinas biggest eretail Alibaba.com. Myntra has about 100 sellers and plans to increase the number to 1,000
by fiscal end. The strategy of Flipkart is to invest around INR600 crore in its fashion business
in coming years to take on global rivals like Amazon and eBay Inc.

3. E-Business Model

The E-Business model is founded on four main aspects which are product innovation,
customer relationship, infrastructure management and financial aspects
The products and services which a firm offers, representing a substantial value to the
customers, and for which they are willing to pay i.e. Value proposition.
The infrastructure and the network that is necessary in order to create value and to
maintain a good customer relationship.
The relationship capital the firm creates over the years and maintains with the
customers, in order to satisfy their needs and to generate sustainable revenues.
The financial aspects, which can be found throughout the three former aspects, such
as cost and revenue structures.

4. Flipkart Pvt Ltd

An Indian company that was founded in 2007, by two IIT Delhi graduates Sachin and Binny
Bansal. It is an online website that focused only on books during its initial years and soon
expanded and started offering other products like consumer durables, lifestyle products etc.
It is registered in Singapore, and owned by a Singapore-based holding company. Flipkart has
more than 9000 employees. Flipkart accepts payments through methods such as cash on
delivery, credit/debit card details, net banking through registered banks and card swipes on
delivery.
Initially, the founders had spent 4,00,000 only for making website to set up the business.
The other fundings in ($ US millions) has been :

Some of the past acquisitions of Flipkart :

YEAR
2010
2011
2011
2012

Financial Health :

COMPANY ACQUIRED
WeRead
Mime360
Chakpak.com
LetsBuy.com

1. In the financial year ended March 2013 Flipkart reported a total loss of INR281.7 crore
as compared to its previous year loss of INR110 crore.
2. Revenues increased to INR1,180 crore from INR205 crore in the previous year.
3. Operational expenses jumped to INR1,366 crore from INR265.6 crore last year.
4. Cash balance dropped to INR166.2 crore on 31st March 2013 from INR236 crore a year
ago.

Business Model :
The company changed its business model in February 2013, moving from online retail to the
marketplace model. Marketplace model includes third parties using companys website as a
platform to sell products to customers. Companies working on the marketplace model get
easy access to overseas funds, and it also allows e-commerce companies to save on
inventory-related costs as the products are held by third parties.

5. Myntra.com
It is an online website that does business in fashion and lifestyle products. It currently has
more than 500 brands and over 50,000 products that are delivered across India using its
distribution network.
Some of the fundings in Myntra in ($ US millions) has been :

6.

Flipkart-Myntra Acquisition

The main idea behind any merger and acquisition is to gain competitive advantage over
others in global market and to accelerate companys growth particularly in situations when its
growth is restricted due to lack of resources. For entering in a new industry/market, the
company may lack the technical workforce and may require special marketing/advertising
skills and a distribution network to access different segments of market. The merging of the
two companies creates additional value which is called synergy value.
Synergy value can take three forms :
Revenues : By coming together, higher revenues will be realized than if the
companies operate separately.
Expenses : By coming together, lower expenses will be realized than if the
companies operate separately.
Cost Of Capital : By coming together, low overall cost of capital will be realized.
Many mergers are driven by the need of the companies to cut operational costs. However,
the best mergers seem to have strategic reasons for the business combinations. These are :

Positioning : Taking advantage of the future opportunities that can be explored when
the two companies function together.
Gap-filling : By combining two companies, one company can compensate for the
weaknesses of others. Eg. A company with a poor distribution channel can take help
from the resources of the company it is merging with.
Bargain Purchase : Instead of building internal systems, it might be cheaper in some
circumstances to buy another company that already has a functional system.
Diversification : Companies looking for long-term growth and profitability may
invest in other industry businesses.
Short term growth : Sometimes, a M&A is done to turnaround poor growth and
profitability. It can be used as a tool to boost performance.
Undervalued Target : Some M&As are carried out for financial instead of strategic
reasons. A company thus undervalued in the market can be seen as a potential
investment by another company.

Flipkart switched to market place model in Feb 2013 through which third party merchants
can sell goods to shoppers using flipkart website. It allows e-commerce companies to scale
up their businesses faster, save transportation and other inventory related costs as the
products are held by merchants. For Flipkart, setting up a seperate fashion vertical meant
boosting margins, because fashion has the highest margins i.e. 35 to 40 % among all products
sold online. On the other hand, Myntra has big plans with its private brands like Anouk,
Dress berry and Roadster, which promise margins as high as 60 per cent. Myntra will
function as a separate brand, and its founder Mukesh Bansal will occupy a seat on Flipkart's
board, heading the fashion vertical at the new entity. Flipkart will bring in its capabilities in
customer service and technology. Both the companies will also retain customers that have
shopped on both websites and that is about 80 per cent of the country's online shoppers have
shopped on either Myntra or Flipkart. However, the companies will not integrate the back
end.

7. CONCLUSION

There are many reasons because of which companies decide for strategic alliances. The
reasons vary from improving efficiencies to lowering costs to increasing market share or to
gain competitive advantage. The ultimate goal behind an M&A is to generate synergy values.
A thorough strategic planning is the key to understand if synergy values do exist. A well
researched plan will increase the chances of realizing synergy values.
The strategic partnership of Myntra and Flipkart can be used to
To pursue adjacent growth
To expand to vertical segments
To collaborate with brands by designing their websites
To open offline stores