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Why Snapdeal wants to buy Freecharge

Snapdeal

E-commerce marketplace Snapdeal is in late stages of discussions to acquire online recharge and couponing site Freecharge, highly placed sources have confirmed to MediaNama. On being contacted by MediaNama, Freecharge founder Kunal Shah said that he has no comments to offer, neither confirming nor denying the development. Snapdeal founder Kunal Bahl hasn’t responded yet to calls and a message.

The deal, which was initially reported by The Economic Times, is pegged to be valued at about $450 million (Rs 2800 crore), will be the biggest such deal in the Indian consumer internet industry, eclipsing Flipkart’s acquisition of Myntra for about $330 million.

But why does Snapdeal want to buy Freecharge?

By acquiring Freecharge, Snapdeal will end up bringing Freecharge’s user acquisition on par with that of competitor Paytm, which runs a substantially large online recharge business, and funnels its user base to its marketplace platform. Snapdeal, which began as a deals site, is an e-commerce marketplace, and the recharge business can be seen as a means of increasing customer acquisition on its own platform. With e-commerce businesses are now looking at advertising as a means of monetization, Freecharge and its advertising and couponing business will be a means for Snapdeal merchants to promote themselves to the Freecharge audience. Note that Snapdeal competitor Flipkart recently bought Adiquity, an advertising platform.

 

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Apart from this, Snapdeal also gets a strong team by acquiring Freecharge: Freecharge has built a strong team in Bangalore: In 2013, when Alok Goel had taken over from Kunal Shah as Freecharge CEO, redBus’s Assistant VP-Product Rajesh Bysani had joined the company in a similar role; Freecharge also has former InMobi VP (Finance) Sharat Khurana as CFO; former TimesDeal.com Business Head Ninad Y. Takpere as Chief Business Development Officer, apart from Pravin Jadhav and Kulin Shah, founders of Wishberg, who moved to FreeCharge, in July 2014.

How will Snapdeal fund the deal?

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The acquisition will be an expensive one, given the amount of funding that Freecharge has raised: Last month, the company announced raising $80 million from San Francisco-based hedge fund Valiant Capital Management and Hong Kong-based hedge fund Tybourne Capital Management, with participation from existing investors. At the time, it was believed to be valued at about $350 million. Freecharge had also raised $33 million from Sequoia Capital, Sofina and RuNet in September last year.

We wonder if the rumored Alibaba fund-raising might be used to finance the acquisition: An ET report last week says that Alibaba may invest up to $1 billion (Rs 6200 crore) in Snapdeal, while Financial Express pegs this at $500-700 million. In October last year, Snapdeal had raised $627 million from Softbank Group, which was an early investor in the Alibaba group, and owns 32% stake in the company. Alibaba, of course, has its own stake in the game in India: with around $585 million invested for a 25% stake in Paytm.

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