Why would Flipkart buy or merge Myntra with itself? Will it be simply to consolidate themselves? Isn’t the e-commerce industry in India too young to actually tend towards consolidation? Isn’t the space to see a lot more upstarts before any form of consolidation begins? Just questions to ponder!
Five reasons to kickstart a discussion, reflect and learn:
- Flipkart wants to strengthen its fashion offerings: It makes a lot of sense for Flipkart to buy an existing player in the market for adding the fast growing fashion segment. Instead of starting a fresh and fighting a strong growing incumbent, just buy up the strongest player in the market and seek scale.
- Myntra recognizes that single category e-tailers can’t survive long: This has been a long pending debate with both sides having candidates succeeding and failing. But the general advice is that it makes sense to have a bunch of categories than a single category when it comes to online retailing, though the verdict is anywhere from being made.
- Flipkart and Myntra both want to grow inorganically: Both are run by entrepreneurs seeking growth. They are ambitious and know fully well that they require a stronger management team to grow their individual units. If merging gives scale to both players, a chance of getting to the next level of the game, it also gives access to better quality funding, human resources, etc.,. M&A is seen as a common inorganic growth strategy.
- The investors behind the ventures think its time for increasing valuations: If three key investors behind each of the two ventures are common, they would like to consolidate their holdings and safeguard their valuations (and investments). Keeping their investments consolidated gives the investors some hold on the firm as well as some security if something goes wrong. It can be like the investors consolidating their portfolio – isn’t it?
- Three is better than Two (Bansals) and all from IIT: Does it not make sense to increase the management team without diluting the widely referred to tag ‘Bansal Brothers’? Flipkart can be continued to be called as run by ‘Bansal Brothers’ even after the Myntra acquisition. They can also continue to be called as an entrepreneurial firm run by IIT Alumni. Isn’t that a good reason for the merger / purchase?
I am sure that there are many reasons and we will never know the real reasons. The real reasons will only be known to the founders (three Bansals) and the investors behind them. Whether this purchase / merger will be for the overall good of the merged entity, will be answered only by time; but for now it seems all good for both Flipkart and Myntra.
Irrespective of the success of the merger or purchase, the stories of Flipkart and Myntra are encouraging and inspiring for aspiring entrepreneurs in India. They can now look up to young Indians who have struck it big. This should inspire a lot more Indians to try their hands at entrepreneurship.