Walmart – Flipkart Deal

The Deal:

World Biggest E-Commerce deal about to take place in India Wal-Mart U.S. based E-Commerce giant will own around 77% of Flipkart the Bengaluru based company which is valued to be $20.8 billion. It is predicted that Google parent company Alphabet seems to invest $2 billion after the deal.

Sachin Bansal co-founder of Flipkart is likely to exit by selling his entire stake i.e.5.5% while Binny Bansal to remain invested with losing some of its stakes. This deal will result in the largest exit for the private equity and venture capital investors in India and startups. Mr. Kalyan Krishnamurty would join as board of directors past the acquisition. Soft bank which invested $2.5billion in 2017 to become the largest stakeholder will exit completely .The other investors like Tiger global, Tencent, eBay to continue with nominal stakes.

The deal will try to bring down Flipkart from public listed company to private listed company with Wal-Mart as majority stake holder of it.

The final makeover of the board is yet to be determined. A report said that, “The board will work to maintain Flipkart’s core values and entrepreneurial spirit, while ensuring it has strategic and competitive advantages.

Who made how much from Walmart Flipkart deal?

Employees holding Esops(Employee Stock Option) and some invested shares are of total worth of $2 billion according to an ET report. These Esops held by current and former employees is estimated to be more than $1 billion for which WalMart could offer 100% buyback.

Founders: Sachin Bansal will sell his entire stake for about $1 billion and exit the company. Binny partial sale of his stake will bring him $104 million while rest of the stake still is invested.

Tiger Global: New York based investment firm Flipkart’s bigger backer since 2010 has racked $3.3 billion which is one of the largest investment return in India private equity and venture capital history. It still holds 5% stake after selling off 17% which is worth another $1 billion.

Softbank: Japan’s Softbank which was the largest stake holder of Flipkart will sell all of its stake and is expecting a return of 1.5 times of the investment it made recently in to Flipkart.

Accel: The US venture firm will retain some of the stake and is expected to take $1billion from the deal.It was the first company to invest in to Flipkart in 2009.

Naspers: It is expected that it would take $2.2 billion from $600 million invested in phases in to Flipkart.

WALMART :

  • Walmart is an American multinational retail corporation that operates a chain of hypermarket, discount department stores and grocery store. Its Headquartered is in Bentonville, Arkansas.
  • Founder – SAM WALTON in the Year 1962
  • It was Incorporated in October 31, 1969 and  Sales increased 45 percent in his first year of ownership to US$105,000 in revenue, which increased to $140,000 the next year and $175,000 the year after that. Within the fifth year, the store was generating $250,000 in revenue.
  • On July 2, 1962, Walton opened the first Walmart Discount City store in Rogers, Arkansas.. Within its first five years, the company expanded to 24 stores across Arkansas and reached US$12.6 million in sales.
  • In 1968, it opened its first stores outside Arkansas, in Sikeston, Missouriand Claremore, Oklahoma.
  • Graphical representation of Walmart revenue over the year 2006-2018

FLIPKART

– The journey from book seller to one of the India’s giant eCommerce platform

  • Flipkart is an Indian electronic commerce company headquartered in Bengaluru, India.
  • Founder -Sachin Bansal and Binny Bansal in October 2007.
  • Started with online book selling country wide.
  • Acquisitions made:
    • WeRead from lulu.com in 2010.
    • Acquisitions on digital distribution of Mime360, Bollywood Portal Chakpak 2011.
    • Online electronics retailer Letsbuy in 2012.
    • Online fashion Myntra 2014.
    • Delhi-based mobile marketing firm Appiterate,2015.
    • PhonePe, Jabong in 2016.
    • eBay India in 2017.

FUNDS

  • ₹400,000(US$6,100) spent to create website and setup business.
  • Flipkart has later raised funding from venture capital funds Accel India(US$1 million in 2009) , Tiger Global (US$10 million in 2010 and US$20 million in June 2011).
  • On 2012, it received US$150 million funding from MIH
  • On 2013, it raised an additional US$200 million from existing investors including Tiger Global, Naspers, Accel Partners and Iconiq Capital.
  • 2013, US$160 million from new investors Dragoneer Investment Group, Morgan Stanley Wealth Management, Sofina SA
  • 2014, US$210 million from Yuri Milner’s DST Global and its existing investors Tiger Global, Naspers and Iconiq Capital.
  • By August 2015, after raising US$700 million, Flipkart had already raised a total of $3 billion, over 12 rounds and 16 investors.
  • 2017 it has secured $1.4 billion at a valuation of $11.6 billion from eBay, Microsoft and Tencent.

On 10 August 2017, Softbank Vision Fund invested US$2.5 billion in Flipkart

The deal’s effect:

What Flipkart Gains:

The company will now be a part of global giant rather than being on the list of Start-ups which will give major boost to Flipkart’s business in India. Flipkart will gain edge over competition with the help of Walmart’s retail management team.It will gain access to newer markets for business including Developed countries.With Walmart taking over Flipkart, it will infuse fresh funds which will help Flipkart expand its operation.

 

What Consumers Gain:

Although the battle of e-commerce supremacy goes global the consumers will more be benefited from the deal. They will get better products and services with the help of Walmart’s world class direct sourcing. This will eventually help to reduce cost and consequently bring down prices of products. It will provide Indian consumers with wide basket of lurking international goods and brands.

e-Commerce sector of India:

Walmart-Flipkart will have a majority share of the e-Commerce market in India. There may be a loss of business among traders,sellers and retailers since walmart could  flood e-Commerce platform with its own products.

Indian economy:

The merged and the rival dividing the e-Commerce market will erode away all the local competitors. Together Amazon and Flipkart controls a majority of India’s $30 billion e-commerce market  that is forecast to grow to $200 billion by Morgan Stanley. This would have an effect on Prime Minister NAMO “Make in India” plan as the competition will now be between two American Giants resulting in smaller players being completely wiped off.

Walmart Amazon Rivalry on world scale:

Although walmart being the greatest in retail has found it necessary to form alliances in its war against Amazon. Walmart to challenge its rival bought Whole food market to gain a foothold in the U.S. grocery industry. Walmart acquired stakes of w-commerce player JD.com in china and in Japan it teamed up with Tokyo’s Rakuten Inc.  Walmart is foraying in to e-commerce right now but Amazon has already started building offline retail presence through partnership under Udaan Project.

Morgan Stanley’s Forecast:

Morgan Stanley’s analysis on some of the global e-commerce companies highlights that 2/3 of their business boosted due to increase in internet users all over the world and the rest was carries out by the then users of the internet purchasing frequency. The number of internet users in India saw a drastic change from 4% to 34.8% since 2007-2016. India had 60 million online shoppers in 2016, which is 14% of the internet user base of the country.

And with the growing technology and digital advancement in India they estimate it to grow around 50% till 2026. There was a bulk increase in the number of users since last 3- 4 years because of the smartphone penetration into the digital market. With the increase in internet users and digital payment systems(Digital Wallets,UPI,etc) the Indian e-commerce industries which was valued at $11 billion in 2013 could rise to $137 billion by 2020 and to $200 billion by 2026.

The adoption of smartphone and growing internet demand does have a significant impact on mobile internet traffic. As there is increase in the users of smartphone the number of users are slowly moving from mobile web to mobile app usage.

Possible reasons for Flipkart to accept the deal???

Flipkart has became a too big to fail company for the Indian startup ecosystem.It has raised over $6 billion from investors like Tiger Global,Accel partners,SoftBank,Tencent,eBay and Microsoft.

A strategic investor always has a different equation than a pure financial investor.A strategic investor eventually wants control and a buyout.The eqity and venture firms will generally look out for IRR. Walmart will not look at just IRR.

Although Flipkart had a backup for investment ,the investor were looking for returns.From the last fiscal year balance sheet it could be seen that it was into loss even though its revenue had risen abrubtly its losses had also widened . The company has reportedly registered a 29% YoY increase in its revenue and recorded high losses, which reached $1.3Bn and translates to an increase of 68% from a loss of $814 Mn registered in FY16. The Indian ecommerce market is undoubtedly growing at a good pace but the thinking of capturing the market is leading the major players to higher losses.

Amazon and Flipkart were giving cut throught competition to each other in order to occupy the same market space. Amazon being backed up by Amazon US has deepest of pocket to invest in to the business whereas Flipkart backed up by equity and venture investors could’nt compete with Amazon in order to occupy the market.It eventually had to merge with someone in order to compete Amazon. Maybe this deal could provide it that platform to compete a global leader like Amazon.

Secondly Flipkart was way back in competition with Amazon. Amazon had started its offline presence in partnership with Uddan Project still Flipkart was planning to do so.By Walmart coming into picture this would help Flipkart make its offline presence more easier.

Although Indian startups possess the talent to compete globally but the only thing that can stop them is they are funded by investors and the co-founders hold minimal stake in the company like in case of Flipkart. So this may be a reason that the decision making power is not anymore with the Cofounders. They should look ways to buyout company stake’s from the investor and try to hold more no. of stake with them which would be beneficial for the companies co founders to take their own decisions.

Why Sachin Bansal choose to quit the self seeded foundation ?

Company insiders say Walmart did not see a role for two co-founders on the board. Sachin Bansal taking exit from the self seeded company has aroused a lot of questions and point of interest on his abrupt departure. Maybe Sachin had something different in his vision .

Why Amazon considers the merger as threat to itself ?

Amazon may have cracked the deal with Flipkart a long ago it entered Indian e-commerce market. It had offered Flipkart twice for the takeover deal but low balled Flipkart investors. At first attempt it offered Flipkart’s investor a deal of $500-$700 million(Flipkart investment at that time,2012,before operations of amazon in India)It bid again with an $8 billion offer in 2015 and the third attempt offered a deal of $22.5 billion to outbid Walmart. But Walmarts deal triumphed because Flipkart’s board decided regulatory clearance would be easier with Walmart’s deal. Now to own the Indian market Amazon may have to double its investment. And secondly Walmart was trying long back to enter into India. But Government norms on FDI in multi-retail brands had stopped him to do his way of business. Now accessing way through this deal Walmart had gained a good position in Indian eCommerce space.It will be difficult for Amazon to compete now with Walmart as Walmart also has been trying to get back its market position since last two years. It’s investment in China,Japan and now in India has been indicating how much Walmart is trying to put tough challenges to its rivals.

Year Investment in US $ Investment in Rs. Made by Valuation
2007 6100 400000 Self Co-founder
2009 1 millon 1000000 Accel India 5 million
2010 10 million 10000000 Tiger Global
2011
June 2011 20 million 20000000 Tiger Global
2012
Aug 2012 150 million 150000000 Nasper Group 1 billion
2013
July 2013 200 million 200000000 Accel India+ Tiger global+ Nasper Group+Iconi Capital 1.6 billion
July 2013 160 million 160000000 Private equity Investor
Oct 2013 160 million 160000000 Dragoneer Investment+Morgan Stanley+Sofinia SA+Vulcan Inc.+Tiger Global
2014 Lists itself under singapore as Public listed company with more than 50 stake holders
May 2014 210 million 210000000 Yuri Milner+Tiger Global+ Naspers+ Iconiq
July 2014 1 Billion 1000000000 Tiger Global+ Accel partners+ Morgan Stanley+ Singapore Sovereign wealth fund GIC
2015 15.2 billion
Dec 2014- Aug 2015 700 million 700000000 Baillie+Gifford+Greenoaks Capital+SteadView Capital+ T.Rowe Price+Qatar Investment Authority+Previous Investors
2016 5.54 billion(as of Morgan stanley slashed flipkart’s value)
2017 11.6 Billion
April 2017 1.4 Billion 1400000000 eBay+ Microsoft+Tencent
Aug 2017 2.5 Billion 2500000000 Soft Bank
  6,51,14,00,000.00
2018
Wallmart Buys 16 Billion 20.8 Billion

Compiled By :

 Sumeet is B.Tech with 3 years of experience. Currently he is working as Analyst Intern with Nikhil Guru Consulting Analytics Service LLP (Nikhil Analytics), Bangalore.

 

 

 

 Janmejaya is M.Tech with 1 year 8 months experience. Currently he is working as Analyst Intern with Nikhil Guru Consulting Analytics Service LLP (Nikhil Analytics), Bangalore.

 

 

 

 

 Shwetha.S is M.Sc(Mathematics). She is working as Analyst Intern with Nikhil Guru Consulting Analytics Service LLP (Nikhil Analytics), Bangalore.

 

 

 Shodhan has completed MCA from RVCE, Bangalore. Currently he is working as Analyst Intern with Nikhil Guru Consulting Analytics Service LLP (Nikhil Analytics), Bangalore.

 

 

 

Reviewed by :

Alok Ranjan is an Analytics enthusiast. He is an MBA in Finance and B.E in Computer Science. He has years of experience in Analytics and is also Co-founder, COO, Nikhil Analytics.

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2 Comments on "Walmart – Flipkart Deal"

  1. Sameer Sippy | May 13, 2018 at 8:23 pm | Reply

    An excellent analysis vis-a-vis current deal between Flipkart and Walmart. Commendable analysis done by Alok Sir and the team-mates

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