Flipkart, one of the largest online retailers in the country, on Thursday announced its plans to acquire rival Letsbuy.com.
While details of the deal were not made public in the statement released by Flipkart, reports suggest that the deal could be anywhere between $20-25 million (Rs 100-125 crore).
“The acquisition is a combination of cash and equity. The founders of Letsbuy along with their 350+ team will continue to function independently, with the added advantage of now being able to access Flipkart's superior technology platform and supply chain capabilities,” said the statement.
“Given that we managed to build a leadership position in consumer electronics as well since its launch in early 2011, it made sense for us to consolidate when we saw this opportunity. This acquisition opportunity came at a very attractive price for us and the timing has also been ideal,” said Mr Sachin Bansal, Flipkart's co-founder and CEO.
Flipkart had acquired Mime360, a Mumbai-based digital content platform, in October last year and weRead.com, a US-based on-demand publishing firm in December 2010.
Analysts said the timing of the current deal is interesting as it is being seen as a move by Flipkart to ward off competition from Amazon. Earlier this month, Junglee, an online shopping service owned by Amazon went live.
Consolidation of this sort could be the way forward for the e-commerce industry, said industry players, because it is an extremely capital intensive industry. “There is too much overheating in this sector. Some players could go in for consolidation while the rest could fold up. In the electronics sector, Letsbuy.com was the most significant player and acquiring it may help Flipkart consolidate its position,” said Mr Gaurav Saraf, Director, Epiphany Ventures.
Both Flipkart and LetsBuy.com have common angel investors – Tiger Global Management and Accel Partners. These two investors invested close to $180 million in Flipkart over the last two years.
Last year, Tiger Global and Accel Partners, along with Helion Venture Partners, invested $6 million in Letsbuy.com.
“Since both have common investors, it may have been the best move for them. From the investors' point of view too, consolidation among competitors would prevent them from losing their money fighting each other,” said Mr Mukul Arora, Associate at SAIF Partners, which invests in the e-commerce industry.