Consolidation gains momentum in e-commerce

“Consolidation is a very subtle way of talking about M&As. It is beneficial for the investors because when one of their collapsed investee firms merges with the other investment, they will not be forced to write it down to zero,” says Mahesh Murthy, co-founder at early-stage venture firm Seedfund. “If the VC or PE investor is able to sell his loss-making investment to another company, he can put off showing the loss and hope for a reduction in the loss in future,” he adds.

Last year, the e-commerce sector witnessed 31 PE and VC deals with an investment of $298 million.

But the way to such mergers and acquisitions is not smooth. “The rationale of such consolidation is a hard one, because operations are not easy to combine. You have to see the brand that your acquiring,” says Mittal. “There are numerous integration issues when M&As happen, as the e-commerce space is new in India,” adds Agarwal of Yebhi.com. But he does not see any benefit for existing investors in mergers. “Unless e-commerce firms are generating cash and have seen a break-even, there is no benefit in terms of exits for the PE firms,” he says.

A few experts feel many target firms were not bought willingly by the acquirer. “Many acquisitions have been made at gunpoint by investors,” alleges Murthy of Seedfund, saying the result is a lack of complete integration. “When Flipkart.com acquired Letsbuy.com, the former had promised no job cuts, but ultimately

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