Can SNAPDEAL snap this deal?

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Can SNAPDEAL snap this deal?

 

September 2016:

Snapdeal unveils its new logo to create a new brand identity. Quite promising!

 

February 2017:

Snapdeal lays off 600 employees and founders offer to work for free.

 

March 2017:

Snapdeal fails to raise funding, faces massive cash crunch.

 

April 2017:

Softbank working on the plan to sell Snapdeal.

 

Well, the fall has been quite steep. Backed by the Japanese giant, Softbank, Snapdeal now realizes that something went wrong with its business plan.

The third largest e-commerce company in this country was caught in a series of events which pulled it down. The founders Kunal Bahl and Rohit Bansal agreed that their business plan went faulty. Diversification, excess manpower on projects before they scaled up, neglecting profitability of projects were some of the reasons, they believe that led to this fall. 100% salary cut looked imminent in the face of a serious cash crunch.   Source:   Mint, company filings

Next in line was, the massive layoff of 600 employees to re-organize the company into a lean and focussed one. The layoff was from its logistics division Vulcan and payment division Freecharge. It came amidst its efforts to optimize its operation.   The company’s trouble never seemed to end as, reportedly, there were clashes between its investors-   Kalaari capital and Nexus Venture Partners on one side and its largest shareholder Softbank on the other side.

This dispute led to company’s failure in raising additional capital. In times when Capital Dumping by global companies is rampant, this came as a shock to this home grown company. It seems investors, especially, Softbank is quite unwilling to infuse money in this company. The reasons became quite clear when reports regarding Snapdeal’s sale to Flipkart started flooding in. This is in direct consequence of Softbank’s loss of INR 2300 crore, which it attributes to its investments in India, namely, Ola and Snapdeal. Softbank has written down INR 3700 crore in November 2016, owing to these two start-ups.

Flipkart, on the other hand, is continually adding arms to its armor. It raised $1.4 billion from new investors Tencent, e-Bay and Microsoft along with existing investors Tiger global and Accel partners. This brings the total funding to $4.5 billion. With the acquisition of India operations of e-Bay, Flipkart is set to take on Amazon. It is the first time in history that a regional player has acquired an arm of a global player. It seems Flipkart is on a shopping spree.  Now, Snapdeal can resist the deal or not, only time will tell.

Softbank drew up three options for Snapdeal- merge with Flipkart, combine with Paytm or a write down of Softbank’s investment to zero.  Also, if the Flipkart merger option succeeds, Softbank will invest $1.5 billion for a 15% stake in the merged firm. All the market players bet their money onto one single firm- interesting!!! This would lead to a two front battle, with all minor players gulped down by Flipkart. And this will give Flipkart a chance to compete with Amazon!

Time to turn the pages.

 

As this deal raises many concerns, the founders of Snapdeal are continuously reaching out to the employees to reassure them.  In this turbulent phase, it seems important to hold the manpower together, not to create a hustle on other ends as well.

So, what are your views regarding this topic?

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