Alibaba, Future Group and Flipkart in race to buy Jabong

By Mann Sharma July 7, 2016

This is indeed the biggest news in the world of eCommerce. Even though there is still no confirmation from the significant parties, the word has it that one of the biggest online clothing ventures, Jabong is up for sale, and Alibaba, Future Group, Flipkart’s Unit, Myntra and Aditya Birla’s e-commerce venture Abof are in the race to acquire the online fashion portal.

If sources are to be believed, even Snapdeal is in the fray though it might not be an aggressive bidder. The asking price is around $250-300 million, while the deal size could be smaller. Indeed, it’s a big thing, and virtually every eCommerce company has its eyes fixed on it.

The online shopping portal came into existence in 2012 when it was founded under the banner of a German incubator. Swedish investment firm Kinnevik also owns a large stake in Jabong’s parent Global Fashion Group. They are both said to be keen to exit. A spokesperson for Rocket Internet in Berlin didn’t comment on the same. Jabong’s communications agency declined to comment on the hearsay, and executives dismissed speculation over a sale. Even a Flipkart spokesperson wasn’t keen to comment.

“Jabong has held talks with these four companies over the past few weeks,” said one executive. “While none of the negotiations has reached an advanced stage, the deal size could be around two times its annual sales and is expected to close within the next six months.”

Reports say that executives from Rocket Internet and Kinnevik are presently camping in India with the motive of overseeing a sale. For the unbeknownst, Jabong’s revenues had dropped 7% to Rs 869.1 crore in 2015 from the previous year while it trimmed losses to Rs 46.7 crore from Rs 159.5 crore post a clampdown on discounts, just as other e-commerce companies did. Gross merchandise value (GMV) went up 14% to Rs 1,503 crore from around 5.4 million orders. GMV comprises total sales with listing fees of third-party vendors selling products on its market.

Aditya Birla Group stated that it wasn’t keen to comment on the same, while Alibaba, Future Group, and Snapdeal weren’t keen to comment. If I believe the sources, there is a huge change in Jabong’s position with a valuation of around $100 million and merely any suitors just six months back.

An improvement has been noticed in the financial performance in just the past two quarters. Now, that’s far from the $1-billion valuation sought around two years ago when negotiations were done with Amazon. Mainly competing with Myntra, Shoppers Stop, and Lifestyle, the company attained breakeven last quarter, which was a rare thing for an online portal to be even a little lucrative in the Indian market. In 2015, the combined losses of the top three online companies, Amazon, Flipkart, and Snapdeal, were registered Rs 5,052.

Meanwhile, Jabong’s growth of 14% was noticed in Jabong’s net sales to 32.6 million in the March quarter with a gross profit of 0.2 million with its derisking business as it moves more in the direction of the consignment and marketplace model while away from discounting. This way, the EBITDA (earnings before interest, taxes, depreciation & amortization) margin enhanced to a negative 36.5 from a negative 57%, representing a total loss reduction of around 4.5 million year-over-year.

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Jabong has an association of top-level managers, such as former Benetton India managing director Sanjeev Mohanty joined in November 2015 as chief executive, and former eBay executive Muralikrishnan Became the fore as a chief operating officer in February. This tends to be an alluring asset for overseas players keen on entering India, as per the experts tracking the process, mainly as 100% foreign direct investment can be there in online marketplaces. All of it started in February when there was a report in ET that Rocket Internet hawked Jabong to Future Group’s Kishore Biyani as both of them had discussed online furniture seller Fabfurnish. Then in April, FabFurnish was acquired by Future Group for over Rs 15 crore however it didn’t accept Jabong’s offer.

It’s expected Jabong to go well with Biyani’s omnichannel play, noting that the country’s largest listed retail group is upbeat about the fashion business while Future is yet to build scalable e-commerce ventures. Founder of retail consultancy Wazir Advisors, Harminder Sahni, said the fashion portal has brand value. “I see merit in somebody acquiring and rebuilding brand because it is not easy to build brand awareness of that level in today’s time as nobody is going to fund that kind of money in the brand building anymore,” he said. “A company like Future Group can also take tax benefits on Jabong’s losses as such losses can be carried forward by the acquirer.

Even (tax savings) on losses are accounted for in valuation models.” Meanwhile, Jabong might not have enough time as a report from ET in March said that parent Global Fashion Group will inject $20 million so that loss-making fashion e-commerce company sales through for some time before it finds a buyer. So as we expect Jabong to be sold within the next 6 months, let’s find out why Jabong is an exciting investment.

Jabong is making profits. It was between the period from January-March 2016 that Jabong’s net sales rose by 14% to $36.2 million. This way it enabled them to have a profit of $0.2 million. Though it wasn’t much when we compared it to a $77 million loss registered by India’s top 3 eCommerce portals: Amazon, Flipkart, and Snapdeal, this little profit means a lot.

FDI is allowed for Online Marketplaces. So now, FDI or Foreign Direct Investment is welcomed by Govt of India in online marketplaces. This could be the reason Alibaba and Myntra are keen to acquire Jabong. Myntra and Jabong cater to the same audience hence if it acquires Jabong, it will be seen as the perfect setting. Meanwhile, in the case of Alibaba, it is a good investment as Jabong is a well-established brand in India and online clothing shopping is the most prominent and growing category.

Strong Brand Value; Perfect Amalgamation Into Offline Retail Jabong has successfully attracted and retained the right people at the right time. With the coming Sanjeev Mohanty as CEO and ex-eBay executive, Murlikrishnan B as COO has been seen as a brilliant move. As we look at their creative marketing and establishment of brand value, Jabong is seen as the ideal acquisition for offline conglomerates endeavoring to scoop out a market share from eCommerce.

This is why Future Group and Abof plan to acquire Jabong and establish themselves online. We must wait before there is an official announcement from the significant parties. Till then, keep reading the space for more.