Saumya Sindhwani, M. Kanchan, Lakshmi Appasamy
The case, set in May 2018, follows an analyst as she undertakes the challenge of decoding the acquisition strategy behind a deal that rattled both venture capitalist and tech startup circles in India. Ananya Menon, Chief Consultant for Retail and E-Commerce at a research and consulting firm in India, had been asked by a client to provide a report on the recent acquisition of the Indian marketplace major Flipkart Pvt. Limited by the Arkansas-based retail behemoth Walmart Inc. Founded in 2007, Flipkart, buoyed by multiple massive funding rounds, had registered meteoric growth both in terms of revenue and market share, and dominated the Indian online retail industry. Though it faced a few setbacks due to misplaced strategies and regulatory changes, it managed to cement its position as the market leader with a share of nearly 40% of the market in terms of gross merchandise value (GMV). However, analysts were sceptical about the sustainability of this position, as the company was a long way from profitability and was burning cash in the form of massive discounts to augment its customer base. Moreover, Amazon Inc., another leading global marketplace company, with deep pockets and top-of-the-line technological capabilities, was close on its heels. Walmart had waited on the fringes of the Indian retail industry since 2007 when the market was opened to foreign investors, but regulatory barriers had confined its operations to the wholesale segment. The e-commerce segment was opened to foreign investment eventually, but under several restrictive conditions. Walmart leapt at the chance and acquired a 77% stake in Flipkart, the leader in the online retail segment. However, the deal price of US$ 16 billion for a company that was consistently making huge net losses sent shockwaves across the VC and e-commerce community. As speculation and debate over the move mounted, Menon was tasked by her client with demystifying the strategic rationale behind the deal.
Objective: From the case discussion, students will learn to: · Analyze and evaluate the rationale for M&A deals; · Analyse the risks and implications involved in M&A; · Value a tech startup that is a potential acquisition target. This case is suitable for undergraduate and postgraduate classes exploring market entry and consolidation strategies, and for introducing them to the fundamentals of business valuation.
26 Mar 2020
Subjects: Acquisition, Acquisition premium, Finance, Negotiation, Valuation
Published on March 26, 2020