1. Consumer Internet sector gets its biggest deal ever with MakeMyTrip, ibibo merger, but broad consolidation unlikely

Consumer Internet sector gets its biggest deal ever with MakeMyTrip, ibibo merger, but broad consolidation unlikely

Acqui-hires or buyouts for technology may see upswing even as firms realign priorities, say experts

By: | Published: October 24, 2016 6:13 AM

The consumer internet sector in India saw one of the biggest merger and acquisition (M&A) deals last week when MakeMyTrip announced its decision to acquire rival ibibo Group through an all-stock transaction to create a dominant position in the online travel space.

The consumer internet segment, which also includes the e-commerce sector, has witnessed a churn of sorts this year with many companies actively looking at the M&A option. This also includes the cashless kind of merger, focused on getting the talent, generally termed as acqui-hire. Earlier this year, it witnessed another mega deal when Flipkart-owned online fashion marketplace Myntra acquired rival Jabong, giving it expanded marketshare and a stronger base.

These acquisitions raise an important question—is the Indian consumer internet market, which includes e-commerce, travel, transportation, etc., now bracing for further consolidation?

These developments also need to be evaluated in the backdrop of the slowdown in funding for the sector. According to a report by VCCEdge, the financial research platform of News Corp VCCircle, venture capital investments saw a decline of 39% in terms of number of deals and 58% in terms of deal value for the nine months ending September 2016 and a similar trend was witnessed in private equity deals which dropped by 37%.

Anil Kumar, CEO, Redseer Consulting, a research and advisory firm says that in the early phase there is a lot of exuberance in terms of number of players but soon the realisation dawns that the market has space only for a limited number of companies. “This kind of mergers are bound to happen when there are multiple companies in a similar business and cash burn is high,” he adds.

The consumer internet sector in India saw a boom in funding in 2015 which led to a number of companies mushrooming quickly with not much of a differentiation. This soon led to downsizing of operations by many companies along with a markdown in their valuations.

V Balakrishnan, former board member of Infosys and chairman of the investment team at Exfinity Ventures, says investor focus today is more on profitability and sustainability of business, adding that consolidation is inevitable for the sector.

“We expect a robust M&A scenario in the near future, with deals aimed at gaining market share and achieving top-line growth goals, consolidating vertical segments and enriching offerings with new innovations, denying competitors an edge,” Ernst & Young (EY), in its report on private equity investments in India during 2015 and expectations with regard to the e-commerce sector, had said.

However, this would not mean that there would be large-scale consolidation happening across the consumer internet sector in the country. Rutvik Doshi, director, Inventus (India) Advisors, said that it is very unlikely that there would be a broad consolidation trend in the sector. Doshi says that any M&A would be specific to the segment or vertical and consolidation would depend on the market maturity of the segment.

There is also the case where many entrepreneurs in a particular segment may feel that there is enough room for growth and not look at the M&A option.

Redseer’s Kumar also says that consolidation is unlikely to be a big trend for the industry going forward. However, he says that acqui-hire or buyouts for technology and talent may see an upswing.

The EY report seconds that. “Acquiring the right talent was one of the prominent drivers of deals in the e-commerce sector. There is considerable demand for tech talent and acquiring them through acquisition is a relatively comfortable way to significantly enhance one’s delivery capabilities with reduced risk and investment that comes with a fresh hiring process,” it said.

These are challenging times for the consumer internet sector as even the large companies are struggling to raise fresh funds. As TV Mohandas Pai, chairman, Aarin Capital and former board member of Infosys says, this could also be the time for them to realign their priorities. “The B2C industry thinks it has to get GMV, customers first, but they forget that they are tech-enabled businesses competing with traditional businesses,” he says. “They require loyalty from their customers but they are also challenged with a high degree of returns and refunds. It is a chimera. Now they are realising that they are tech-enabled business and must be cost-efficient.”

Please Wait while comments are loading...

Go to Top