INRODUCTION
MERGER AND ACQUISITION
In today's globalized scenario, competitiveness and competitive advantages have become the buzzwords for corporate around the world. Merger and Acquisition in the e-commerce sector have been on the rise in the recent past, both globally and in India. In this backdrop of emerging global and Indian trends in e-commerce sector, this study illuminates the key issues surrounding M & A in Merger and Acquisition with the focus on India. It also seeks to explain the motives behind some Merger and Acquisition that have occurred in India Mergers and Acquisitions is the only way for gaining competitive advantage domestically and internationally and as such the whole range of industries are looking to strategic acquisitions within India and abroad. In order to attain the economies of scale and also to combat the unhealthy competition within the sector besides emerging as a competitive force to reckon with in the International economy. Consolidation of Indian e-commerce sector through mergers and acquisitions on commercial considerations and business strategies – is the essential pre-requisite. Today, e-commerce sector is counted among the rapidly growing industries in India .The business world is being gradually changed to an economy by the ever-increasing global competition, increased information availability, knowledgeable consumers, changing relationships, rapid innovations, and increasingly complex products. In the last few years, there have been paradigm shift in Indian e-commerce sector. The Indian e-commerce sector is growing at an astonishing pace. Arelatively new dimension in the Indian e-commerce sector is accelerated through mergers and acquisitions Mergers and acquisitions are a response to new technologies or market conditions that require a strategic change in a company's direction or use of resources. Compared to current management, a new owner is often better able to accomplish major change in the existing organizational structure. The rapid growth of e-commerce in India is being driven by greater customer choice and improved convenience. India has an internet user base of over 200million users as of 2013. 3rd largest internet population compared to markets like the US and the UK but is growing at a much faster rate with a large number of new entrants. The industry consensus is that growth is at an inflection point with key drivers of Increasing computer educational level, Increased Usage of Internet, Rising standards of living and high disposable incomes , Availability of a much wider product range (including online purchase from international retailers and direct imports) compared to what is available at brick and mortar retailers ,Busy lifestyles, easy to find product reviews, urban traffic congestion and lack of time for offline shopping , Lower prices compared to brick and mortar retail driven by disintermediation and reduced inventory and real estate, user experience, payment gateways & logistics etc.
FLIPKART
Flipkart is an e-commerce marketplace unicorn company founded in 2007 by Sachin Bansal and Binny Bansal. The company is registered in Singapore, but has its headquarters in Bangalore, Karnataka, India. Flipkart has launched its own product range under the name "DigiFlip" with products including tablets, USBs, and laptop bags.
Flipkart's last fundraising round in May 2015 had pegged its valuation at $15 billion. In May 2016, Morgan Stanley lowered Flipkart's valuation to $9.39 billion.
MYNTRA
Myntra is an Indian fashion e-commerce marketplace company headquartered in Bengaluru, Karnataka, India. The company was founded in 2007 by Indian Institute of Technology graduates with a focus on personalization of gift items. By 2010, Myntra shifted its focus to the online retailing of branded apparel.
In May 2014, Myntra.com merged with Flipkart to compete against Amazon which entered the Indian market in June 2013 and other established offline retailers like Future Group, Aditya Birla Group and Reliance Retail
acquisition in flipkart and myntra
FS analyzed and comprehended the major factors that forced Myntra and Flipkart to merge their ventures –
[A] Flipkart and Myntra Merge – Business Expansion and Market Consolidation
Flipkart has already acquired a large consumer base in e-commerce of Books, Electronics Goods etc. So instead of struggling with its rudimentary vertical of Fashion and Lifestyle Products, the acquisition of well trusted player of same domain, Myntra, was upright choice for Flipkart. More than 150k product catalogue of Myntra helped Flipkart in enhancing its business vertical of Apparel.
Flipkart co-founder and CEO Sachin Bansal stated about this acquisition that they, at Flipkart, believed that they wanted to be leaders in every segment and fashion was a category of the future, this acquisition would help us become leaders in this category.
Mukesh Bansal, Founder of Myntra, stated that they wanted to exploit their mutual synergies (like the technology at Flipkart and market leadership of Myntra) in order to accelerate their growth.
Flipkart also ensured the sector consolidation of e-commerce by acquisition of Myntra. It's like becoming one single known name when online shopping comes into mind. So the best strategy for market consolidation of e-commerce is by incorporating all possible verticals into one single business model.
[B] Consumer Base – Loyalty, Sharing and Acquisition
Before the Deal though e-commerce had made a remarkable presence in startup eco-system , loyalty of consumers was still in doubt. The availability of large number of players of same domain, cash burn tactics for attracting customers, discount oriented mindset of public etc were some of the reasons that were creating large turbulence in penetration and loyalty. Also, since the acquisition cost of consumers was high for e-commerce players and switching cost was non-existing so they both needed a large pool of loyal customers. Through the deal Myntra and Flipkart were able to combine their loyal consumer base into a common pool.
Myntra claimed to have 8million registers and loyal user base while Flipkart has 18 million. So the deal developed a large loyal market volume for both of the players.
Addressing the consumer behavior and acquisition, Sachin Bansal stated that Cost synergies were not their priority for this deal, it was about scaling the two businesses in much faster to expand market share in fashion.
[C] Market Competition – Biggies, FDI and Future
Market competition that both of the players, Myntra and Flipkart were facing was huge. All the marketing capturing strategies could easily be replicated by biggies like Snapdeal, Amazon, E-bay – strong enough in terms of funds, technology and manpower.
Also, the regulation of FDI was a big concern for both of the player. As the government was planning to allow 100% FDI in retail, players like Amazon, Ebay, Walmart could have introduced their own products and shifted to an inventory based model. Earlier model of Flipkart was also inventory based before they faced capital issues and shifted to market based model.
The combined market share of both the players was already 50% which was expected to increase up to 70% after this apparel concentrated acquisition. So the deal was a win-win situation for both to stand against the market competition in long run.
[E] Loss Reduction by Combining the Services – Technology, Consumers, Logistics
So far, none of the e-commerce player had reported to achieve profitability in their business model. High cash burn, forward and reverse logistics cost in poor infrastructure, technical backend cost etc. were the factors contributing to this continuous loss of money for these Ecommerce firms.
In 2013, Flipkart lost Rs 281 Crore (US$47 million) on revenues of Rs 1,180 Crore (US$197 million) while Myntra lost Rs 134 Crore (US$22 million) on revenues of Rs 212 Crore (US$35 million).
Combined services of both the players, shared logistics, technical backend, consumers would help them in reducing this loss over revenue. So the deal was a win-win situation for Myntra and Flipkart.
[F] Investors Long Term Vision – IPO
Fashion is the business which is most profitable amongst the all products which are being currently sold in online market places. And all other verticals introduced by Flipkart were nowhere near the margins which fashion vertical was generating.
According to Indian stock exchange, a company that is losing money can't come in picture for Initial Public Offering. So Myntra as well as Flipkart were not able to go for IPO listing due to their money loss and also have threat of running out of cash in near future.
IPO being the ultimate goal of VCs and the investors of both the companies Myntra and Flipkart are same, Tiger Global, Acela Partners etc., the combined entity would be able to run longer with their available funds and reduce their loss and become profitable in coming future.
So the deal would help investors to offer IPO sooner than running separately and make return on their investments earlier.
[G] Rise of private label players – High profit margins
One major advantage to the retailers in India, and which works in favor of private labels, comes from the fact that Indian consumers are less brand conscious and more quality and freshness conscious. Retailers have increased their profits by offering private label products since there are huge margins to be achieved from private label products, which are 30-40% higher margins than branded products. Retailers are not any more offering low quality products for a lesser price, but they are creating new level of differentiation, better pricing for a good quality product and new merchandising and promotion strategies.
Flipkart which was earlier into branded product selling saw a better option through Myntra's private labeling strategy. Myntra's association with numerous private label players was another added advantage.
Literature Review
Joydeep Biswas (2004), " Recent trend of merger in the Indian private corporate sector". They research about Corporate restructuring in the form M&A has become a natural and perhaps a desirable phenomenon in the current economic environment. In the tune with the worldwide trend, M&A have become an important conduit for FDI inflows in India in recent years. In this paper it is argued that the Greenfiled FDI and cross-border M&As are not alternatives in developing countries like India.
Vijay Shrimali and Karunesh Saxena's (2004), "Economic Advantages of Merger and Acquision." due to the imminent implementation of WTO Guidelines with effect from July 2005, it was become mandatory for business organization to strengthen their R&D base. Consequently, the size of the business organization matters most, merger and acquisition have, therefore, become order of the day, an attempt has been made in the paper to provide a theoretical framework of M&A, various examples of merger and acquisition in the world market and finally, the economic advantage of M&A have been outlined.
Vanitha. S (2007), "Mergers and Acquisition in Manufacturing Industry", she analyzed the financial performance of the merged companies, share price reaction to the announcement of merger and acquisition and the impact of financial variables on the share price of merged companies. The author found that the merged company reacted positively to the merger announcement and also, few financial variables only influenced the share price of the merged companies.
Vanitha. S and Selvam. M (2007), "Financial Performance of Indian Manufacturing Companies during Pre and Post Merger", they analyzed the pre and post merger performance of Indian manufacturing sector during 2000-2002 by using a sample of 17 companies out of 58 (thirty percent of the total population). For financial performance analysis, they used ratio analysis, mean, standard deviation and 't' test. They found that the overall financial performance of merged companies in respect of 13 variables were not significantly different from the expectations.
Pramod Mantravadi and Vidyadhar Reddy(2007), "Relative size in Mergers and Operating Performance" they explains that This research study aims to study the impact of m & A on the operating performance of acquiring corporate in different periods in India, by examining some pre and post merger financial ratios with chosen sample firms and mergers between 1991-2003. The result suggests that there are minor variations in terms of impact on operating performance following merger in different intervals of time in India.
Ryo Kawahara and Fumiko Takeda, (2007), "M & A and Corporate Performance in Japan" This paper investigates how M & A affect corporate performance for three years after their implementation. The corporate performance of 162 M & A that took place in Japan from 2001-03 is analyzed by using Wilcoxon signed rank test. They find that overall effects of M & A on corporate performance are statistically insignificant, compared to the corporate performance of other companies within the same industry with similar pre-acquisition performance.
Objective of study
To understand the existing e-commerce system of India.
To examine major challenges faced by Indian consumer while shopping online.
To study the purpose of marger and acquisition in e-commerce site.
To find out the valuation after and before of M&A of site.
To study of employment opportunity of Indian customer.
Research Methodology
This research paper is descriptive in nature and is based on the secondary data attained from the various resources such as old research papers various e-journals, books, websites, whitepapers, newspapers and some of the governmental data etc. The data is compared with the previous data of Indian e-commerce industry with respect to the world economy.
Data Sources
Secondary Data:
Annual Report of Companies
Details of Companies from their respective websites
Business Articles
Business Magazines
Library Research
Internet Surfing
Data analysis
Data analysis from following methods
T test
Z test
Test of Hypothesis
Test will applied according to the data collected.
Conclusion
Although there is a plethora of research literature on mergers and acquisitions, most of the studies have been done for the efficient markets of the developed world especially US and UK. In India, very limited research has been done on this burning topic. Books available are in plenty but they are mostly theory based. None of the few studies conducted in India have explored the performance of mergers and acquisitions empirically in terms of their effect on Performance of Company. The present study makes an attempt to fill these voids and aims to investigate the financial performance of Pre – Post mergers and acquisitions that have taken place during 1995-2016.
References
www.Flipkart.com
www.Myntra.com
www.gadgetsnow.com
www.icmrindia.org
Biswas Joydeep,(2004) : Corporate Mergers & Acquisitions in India Indian Journal of Accounting Vol. XXXV(1), pp.67-72
Shrimali Vijay and Saxena Karunesh, (2004) : Merger & Acquisitions : Indian Journal of Accounting Vol. XXXV(1), pp 48-54
Vanitha, S. 2006. Mergers and Acquisitions in the Manufacturing Sector: An Evaluation Study, PhD Dissertation, Bharathidasan University, Tiruchirappalli.
Vanitha, S. and M. Selvam, 2007. Financial Performance of Indian Manufacturing Companies during Pre and Post Merger. International Research Journal of Finance and Economics, 12:7-35
Mantravadi, P. and A. Reddy, (2008). "Relative Size in Mergers and Operating Performance: Indian Experience", Working Paper Series, available at: www.ssrn.com (accessed March 15, 2008).
Ryo Kawahara and Fumiko Takeda, (2007) 'M & A and Corporate Performance in Japan' Journal of Banking and Finance 17, pp. 411-422.
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