Article: The Flipkart-Snapdeal merger saga


The Flipkart-Snapdeal merger saga

With reports of a possible acquisition of one of India's oldest e-commerce companies, Snapdeal, by one of its biggest competitors, Flipkart. We take a closer look at talent implications of the such an acquisition in today's day and age.
The Flipkart-Snapdeal merger saga

The Indian e-commerce sector is poised for a major upheaval. If reports are to be believed, a merger between e-commerce giants Flipkart and Snapdeal, the biggest of its kind within the Indian e-commerce sector, is just a matter of time. Softbank, a major investor, and shareholder in both the companies has been pushing for a possible sale of Snapdeal to Flipkart for quite a while now. In line with its vision to be a major investing force behind the seemingly booming Indian start-up space and to fend off potential rivals like Alibaba and Amazon for gaining a significant foothold in Indian markets, this move comes as without surprise. 

Snapdeal, one of India’s foremost e-commerce companies was started back in 2010 and founded by Kunal Bahl and Rohit Bansal. As things unfold with passing time, the latest has been that Snapdeal is expected to be sold at a valuation of Rs 6,400 crore.  What can be best described as a tumultuous journey, the company has witnessed nearly 12 rounds of funding over its 7 years of existence; an amount that adds up to nearly $2 billion. The ongoing problems of increasing losses and dwindling cash reserves to keep the company functioning, in a business model which depends heavily on discounts and sale, have reportedly tipped Softbank to push for a potential acquisition of the company by Flipkart, one of its closest and oldest rival in the Indian markets.

The greatest impact of most merger or acquisition cases has traditionally been experienced by the employees and managers working in both the companies. Financial stability, often due to its short term criticality, usually forms the focus area within companies. In an interview with Mark Oshima, Managing Partner, and Sharad Vishvanath, Regional MD & Partner from Aon Strategic Advisory explain how often companies miss out crucial HR steps, that lead to talent problems in the form of layoffs and exodus in the future. The ability to create an effective top-down communication channel and providing relevant compensation models, among other measures become crucial when it comes to ensuring an effective transition.  

In the past few months, there have been many employees in key managerial positions who have left the company. And this has been the case on both the sides of the deal. Snapdeal has seen a number of voluntary and involuntary exits while Flipkart recently let go of their Head of HR  with reports also coming in that Flipkart's chief operating officer Nitin Seth, one of the top-ranking executives at the firm, has put in his papers, transferring key portfolios like HR and finance under his purview. 

Although these exits within Flipkart can be seen as measures to streamline the chain of command, aimed at preparing the company for an acquisition which seems almost inevitable, it’s the Snapdeal employees that are on edge. While the company has hiked salaries by up to 15 percent of its employees who have chosen to continue with working with it, employees are concerned about their future as the impending takeover looms ahead. 

Snapdeal has reportedly taken measures to create a cushion for their employees. The Mint reported that Snapdeal that may offer a Rs193 crore bonanza to its staff if the homegrown e-commerce firm is taken over by larger rival Flipkart. 

According to a PTI report, the founders will give half of their payout ($30 million) for the proposed scheme which would cover all current employees of Snapdeal. Snapdeal has about 1,500-2,000 staffers.

“The founders have asked the board to carve out $30 million (about Rs193 crore) from their settlement for payouts to the Snapdeal team. They want to ensure that the team does not get sidelined in any manner,” the PTI report added. “A move which may benefit some of the former senior executives of Snapdeal, who have left the firm in the last 12 months, as well. The intent is also to compensate for the ESOPs that were issued to senior employees. The value of their shares and options have eroded and would be worthless once the deal is signed, one of them said. Interestingly, the deal linked payment would also be extended to employees who do not own ESOPs to reward those staying on with Snapdeal till the proposed transaction with Flipkart is complete. If the deal goes through, Snapdeal founders will get $60 million (cumulative), of which half will be given to employees.” 

Such measures, though not complete in themselves are some the necessary steps that Snapdeal needs to take in order to ensure a smooth transition

With the Japanese conglomerate and Snapdeal’s largest investor, SoftBank being more interested consolidating its losses within the e-commerce sector (SoftBank had recently said it suffered a loss of $1 billion, or Rs6,500 crore, on its investment in Snapdeal during 2016-17), its aim has been to get other Snapdeal investors on board for its eventual sale. It has managed to get board members, which also includes the founders (Kunal Bahl and Rohit Bansal) and early investors Kalaari and Nexus Venture Partners, to agree to the potential deal. According to the PTI report, Nexus Venture Partners could stand to get close to $80 million and a stake in the merged/new entity, while Kalaari could get about $70-80 million. A move which perhaps makes economic sense from an investor's point of view, there still needs to be a clear agenda on how subsequent talent issues can be mitigated and subsequently dealt with. 

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Topics: C-Suite, #MergersAndAcquisitions

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