Alipay, China’s leading online payment platform, has entered the fray to acquire Freecharge, the mobile wallet company owned by Snapdeal. So far Axis Bank has been ahead in the race to acquire the firm, with the other contenders being Bank of Baroda and Paytm, but Alipay’s entry will give the race a whole new dimension. The entry of $22-billion Alibaba Group’s Alipay as an independent bidder is surprising given that its parent Alibaba group is already an investor in Paytm. Multiple sources told FE that decks have been cleared for a clear sale of Freecharge as it has been made into a separate legal entity. Freecharge was acquired by Snapdeal in 2015 for an estimated value of $400 million.
Axis Bank, which is the front runner currently, is in the process of conducting financial and commercial due diligence of Freecharge. Alipay may come up with a higher bid for Freecharge, sources indicated. It has been reported that Axis Bank’s offer is $15-20 million higher than that of Bank of Baroda.
Another person who is aware of the developments said that Freecharge has also started to buyback ESOPs from its employees in the run up to a deal. E-mails sent by FE to Axis bank, Freecharge and Alipay seeking their responses on these developments remained unanswered till the time of going to the press.
Sources said the due diligence process is likely to take around six months. Axis Bank is in no hurry to close the deal as valuations are expected to fluctuate, they added.
“Freecharge’s monthly burn rate is around Rs 8-9 crore,” said a source. Freecharge had reported a loss of Rs 235 crore on a revenue of Rs 36 crore in FY16, according to filings with the Registrar of Companies (RoC). Freecharge has about 150 employees in India and some of them are old timers who have been transferred from Snapdeal. Retention bonuses have also been promised to employees, apart from an assurance of continuity of employment in the event of an acquisition, the person said.
The bidding war for Freecharge needs to be seen in the context of the ongoing negotiations between Snapdeal and Flipkart, with the latter having already placed its offer for a buyout. Snapdeal had rejected Flipkart’s initial offer, and may come up with a revised higher bid, shortly.
Said a source, “Hopes of a better deal for Freecharge has raised the bargaining power of Snapdeal during its talks with Flipkart. The better valuation for its affiliates like Freecharge and Vulcan will provide Snapdeal the interim working capital required to run the business, while giving them an edge over Flipkart on the negotiating table.”
Morgan Stanley in a report last month had said that India’s mobile wallet transactions were up nine-fold in the last two years to reach $9 billion. Post demonetisation, mobile wallet payments have shot up significantly in the country, making it very attractive market for global players.