T

a
c
t
f
u
l
M
a
n
a
g
e
m
e
n
t
R
e
s
e
a
r
c
h
J
o
u
r
n
a
l

V
o
l
.
2
|
I
s
s
u
e
.
8
|
M
a
y
2
0
1
4
ISSN :2319-7943

ORIGINAL ARTICLE

MERGER AND ACQUISITION IN

E-COMMERCE SECTOR
Priyanka , Khushboo Sagar and Richa Verma
Assistant Professor , Ramjas College , Universtiy Of Delhi.
Assistant Professor , Shri Ram College Of Commerce , Universtiy Of
Delhi.
Assistant Professor , Ramjas College, Universtiy Of Delhi.

Abstract:
The main objective of this
research paper is to
analyse the market growth
of e- commerce which
attracts the merger and
acquisition in India.
Through this paper we will
try to find out reasons of
merger and acquisition
from the experience of
Indian e- commerce sector.
Internet growth has led to a
host of new developments,
such as decreased margins
for companies as
consumers turn more and
more to the internet to buy
goods and demand the best
prices .The industry is
growing rapidly and there
is still a huge potential for
growth. "Likewise, the
industry has grown
exponentially over the last
11 months and will
continue to see growth the
increased competition in
the global market has
prompted the Indian
companies to go for
mergers and acquisitions as
an important strategic
choice. The sector is
witnessing a swathe of
consolidation owing to
various mergers and
acquisitions .However,
industry experts believe this
is just the start of the ecommerce wave in India.
The growing penetration of
technology facilitators such
as Internet connections,
broadband and third
generation (3G) services,
laptops, smart phones
,tablets and dongles,
coupled with increasing
acceptance of the idea of
virtual shopping, is set to
drive the e-commerce ecosystem. The e-commerce
story in India would surely
witness a new world of
digitalisation in the coming
decade ,with a host of startups emerging to compete
with existing players in
order to draw benefits from

the
new and existing markets.
KEYWORDS:
MERGER And Acquisition , E-Commerce , acquisitions.
INTRODUCTION
In
today's
globalized
scenario,
competitiveness and competitive advantages
have become the buzzwords for corporate
around the world. Merger and Acquisition in
the e-commerce sector have been on the rise
in the recent past, both globally and in India.
In this backdrop of emerging global and
Indian trends in e-commerce sector, this study
illuminates the key issues surrounding M & A
in Merger and Acquisition with the focus on
India. It also seeks to explain the motives
behind some Merger and Acquisition that
have occurred in India
Mergers and Acquisitions is the only way for
gaining competitive advantage domestically
and internationally and as such the whole
range of industries are looking to strategic
acquisitions within India and abroad. In order
to attain the economies of scale and also to
combat the unhealthy competition within the
sector besides emerging as a competitive
force to reckon with in the International
economy. Consolidation of Indian ecommerce sector through mergers and
acquisitions on commercial considerations
and business strategies is the essential prerequisite. Today, e-commerce sector is
counted among the rapidly growing industries
in India .The business world is being
gradually changed to an e- economy by the
ever-increasing global competition, increased
information availability, knowledgeable
Priyanka , Khushboo Sagar and Richa Verma MERGER AND ACQUISITION IN E-COMMERCE:
SECTOR Tactful Management Research Journal (May ; 2014)

MERGER AND ACQUISITION IN E-COMMERCE SECTOR

consumers,
changing
relationships,
rapid
innovations, and increasingly
complex products. In the last
few years, there have been
paradigm shift in Indian ecommerce sector. The Indian
e-commerce
sector
is
growing at an astonishing
pace. A relatively new
dimension in the Indian ecommerce
sector
is
accelerated through mergers
and acquisitions
Mergers and acquisitions are
a response to new
technologies or market
conditions that require a
strategic change in a
company's direction or use of
resources. Compared to
current management, a new
owner is often better able to
accomplish major change in
the existing organizational
structure.
The rapid growth of ecommerce in India is being
driven by greater customer
choice
and
improved
convenience. India has an
internet user base of over
200million users as of 2013.
3rd largest internet population
compared to markets like the
US and the UK but is growing
at a much faster rate with a
large number of new entrants.
The industry consensus is that
growth is at an inflection
point with key drivers of
Increasing
computer
educational level, Increased
Usage of Internet, Rising

standards of living and high

disposable
incomes
,
Availability of a much wider
product range (including
online
purchase
from
international retailers and
direct imports) compared to
what is available at brick and
mortar
retailers
,Busy
lifestyles, easy to find product
reviews,
urban
traffic
congestion and lack of time
for offline shopping , Lower
prices compared to brick and
mortar retail driven by
disintermediation and reduced
inventory and real estate, user
experience,
payment
gateways & logistics etc.
E-COMMERCE SECTOR HAVE BEEN CONSTANTLY
INNOVATING
To capitalise on the benefits
offered by the unique Indian
consumer base, ecommerce
Companies
have
been
innovating with policies
traditionally not available in
a brick-and-mortar store.
Companies have introduced
return policies ranging from
730 days, free home
delivery and the most recent
cash on delivery model.
The last innovation has led to
a lot of momentum in
Internet sales and changed
people's perception towards
online shopping as shoppers
can now purchase without
disclosing their credit/debit
card details. It is believed
that more than 50.0 per cent
of all online transactions in
India are based on the cash
on delivery (COD) payment
methodology.
The trend in the e-commerce
segment is that most of the etailers start with a single
product and later diversify
their product portfolio with
multiple offerings. Notably,
the
market
leader
Flipkart.com broadened its
offerings
with
various
products such as mobile

phones, computers, movies,

music, baby products and
stationery from its initial setup of selling books online
Furthermore, Snapdeal.com,
the second largest ecommerce company that
began operations as an online
group discounting site in
2010, got converted into a
market place with thousands
of products.
OBJECTIVES OF THE STUDY
To study the reasons for merger and acquisition in Indian e-commerce
sector.
To analyse the mergers and acquisition in e-commerce sector.
To study the challenges faced by e-commerce sector in India.
RESEARCH METHODOLOGY
A comprehensive study has
been undertaken for the ecommerce those have gone
for M&A during the postreform period. Data require
for the research paper is
collected from secondary
sources.
Following
secondary sources have been
used for data collection:
digital-commerce
IAMAI
reports, books, websites,
newspaper, journals that are
involved in consolidation
REASONS FOR MERGER AND ACQUISITION
To
Limit
competition:
Markets
developed
and
became more competitive
and because of this market
share of all individual firms
reduced so mergers and
acquisition started.
Utilise under-utilised market power
The primary motivation for
most mergers is to increase
the value of the combined
enterprise. Synergistic effects
can arise from four sources:
(1) operating economies,
which result from economies
of scale in management,
marketing, production, or
distribution; (2) financial
economies , including lower
transactions costs and better

coverage
by
security
analysts;(3)
differential
efficiency, which implies
that the management of one
firm is more efficient and
that the weaker firm's assets
will be more productive after
the merger; and (4) increased
market power due to reduced
competition. Operating and
financial economies are
socially desirable, as are
mergers
that
increase
managerial efficiency ;but
mergers that reduce
Tactful Management Research Journal |

MERGER AND ACQUISITION IN E-COMMERCE SECTOR

competition are socially undesirable and often illegal.

Utilise under-utilised resourceshuman and physical and managerial
skills.
Displace existing management.
Create
an
image
of
aggressiveness and strategic
opportunism,
empire
building and to amass vast
economic powers of the
company.
Transfer of skill takes place
between two organisation
takes place which helps them
to improve and become more
competitive.
Managers
often
cite
diversification as a reason for
mergers. They contend that
diversification helps stabilize
a firm's earnings and thus
benefits its owners ,to
employees, suppliers, and
customers.
Financial economists like to
think that business decisions
are based only on economic
considerations,
especially
maximization
of
firms'
values. However, many
business decisions are based
more on managers' personal
motivations
than
on
economic analyses. Business
leaders like power, and more
power is attached to running
a larger corporation than a
smaller one. Obviously, no
executive would admit that
his or her ego was the
primary reason behind a
merger, but egos do play a
prominent role in many
mergers.
Firm will be touted as an
acquisition
candidate

because the cost of replacing

its assets is considerably
higher than its market value.
Tax considerations have
stimulated a number of
mergers. For example, a
profitable firm in the highest
tax bracket could acquire a
firm with large accumulated
tax losses. These losses could
then
be
turned
into
immediate tax savings rather
than carried forward and
used in the future.
RECENT MERGER AND ACQUISITION IN INDIA
1.Flipkart buys out Myntra
for $300 Million. Flipkart is
a leader in selling multiple
product categories online and
Myntra is India's leading
fashion retailer with strong
brand recall.
Their combined might also
places them in a better
position to take on the likes
of Amazon, which has
become increasingly
aggressive in India's
booming e-tailing market.
Flipkart is into a number of
categories, Myntra is focused
on fashion e-tailing. With
Myntra's share of 30% of
online fashion sales, Flipkart
now has a 50% share in a
segment
that's
clocking
nearly 100% annualized
growth. With this deal,
Flipkart
effectively
has
stolen the thunder from
Gurgaon-based
Snapdeal,
which was looking to be the
first e-tailer in India to cross
Rs 1,000 crore in fashion
sales by the end of this year.
As part of the acquisition,
Myntra co-founder Mukesh
Bansal will join Flipkart's
board and will also oversee
Flipkart's fashion business.
Flipkart and Myntra will
remain as two separate
entities, but people holding
stock options in Myntra will
now hold the same in
Flipkart. The current deal

appears to be win-win for

both companies, and could
be the making of a giant
company, better positioned to
address India's growing
demand for online retail one that could put up strong
competition against rivals
.Flipkart has announced it
will invest $100 million in
Myntra over the next 12 to
18 months, and it hopes to
become the country's largest
fashion entity. That is a big
advantage for Myntra, which
has raised $125 million so
far, and will not have to
worry about raising funds for
further growth. The $130million apparel e-retailing
industry is growing fast.
However, fashion is highly
fragmented
and
underpenetrated .While Flipkart
will bank on Myntra's
fashion
expertise
and
expanding its base of vendor
brands (currently around
650), Myntra will leverage
Flipkart's logistics network.
Flipkart ships books to
almost all of India's 21,000
PIN codes, and covers more
than 100 cities for its entire
product portfolio of 20
categories,
including
consumer electronics, office
supplies, and health and
beauty products. Myntra
reaches 30 cities with its own
logistics network, Myntra
Logistics, and around 9,000
PIN codes via third-party
logistics companies.
For Flipkart, setting up a
huge fashion vertical means
boosting margins, because
fashion has the highest
margins - 35 to 40 per cent among all products sold
online. Myntra has big plans
with its private brands like
Anouk, Dress berry and
Roadster, which promise
margins as high 60 per cent.
Myntra will continue to
operate as a separate brand,
and its founder Mukesh

Bansal will occupy a seat on

Flipkart's board, heading all
fashion at the new entity.
Flipkart will bring in its
capabilities in customer
service and technology. Both
companies will also net
customers that have shopped
on both portals - about 80 per
cent of the country's online
shoppers have shopped on
either Myntra or Flipkart.
However, the companies will
not integrate the back end.
The two teams will also
function separately.

Tactful Management Research Journal |

MERGER AND ACQUISITION IN E-COMMERCE SECTOR

Flipkart and Myntra are very

different companies, so not
merging all processes makes
sense for now. However, it
could lead to challenges
later.Flipkart is more of a

multiple-category horizontal
player, aggressive on growth
and market share, with a
strong focus on customer
experience. Content has
never been part of its core
strategy.
But for Myntra, focused as it
is on fashion, the business
model revolves around
merging the customer
experience of a fashion
magazine with retail. The
company has even roped in
Bollywood celebrities such
as Hrithik Roshan for its
private brand, HRX.

Tactful Management Research Journal |

MERGER AND ACQUISITION IN E-COMMERCE SECTOR

However, achieving cost

efficiency is not yet a
concern for Flipkart. As
Sachin Bansal puts it: "Cost
synergies are not our priority
for this acquisition. It was
about scaling the two
businesses in much faster to
expand market share in
fashion."
Financial details of the deal,
including Myntra's valuation,
were not disclosed by the
two companies, but Mukesh

Bansal said: "It is a fair

valuation."
1.Acquisition
targets
include Sequoia Capitalbacked Shopo.in, an online
marketplace
for
Indian
handicraft products, which
was bought by online
marketplace Snapdeal. The
transaction was motivated by
access to a network of sellers
in a niche that would
generate incremental value in
terms of sales.
2.In another e-takeover,
Flipkart acquired Letsbuy in
order to deepen its catalogue
of electronics products, while
online babycare company
Babyoye
merged
with
competitor Hoopos in a
demand acquisition play, as
the companies targeted a
similar customer base. Both
were backed by Helion
Venture Partners.
CHALLENGES OF E-COMMERCE IN INDIA
A.T. Kearney's 2012 E-Commerce Index examined the top 30
countries in the 2012 Global Retail
Development Index (GRDI). India is not ranked. India, the world ?
s second most populous country at 1.2
billion, does not make the
Top 30, because of low
internet
penetration
(11
percent) and poor financial
and logistical infrastructure
compared to other countries.
Some of the infrastructural
barriers responsible for slow
growth of e Commerce in
India are as follows. Some of
these even present new
business opportunities.

A.

Payment
Collection:
When get
paid by net banking one has
to end up giving a significant
share of revenue (4% or
more) even with a business
of
thin
margin.
This
effectively means parting
away with almost half of
profits. Fraudulent charges,
charge backs etc. all become

merchant's responsibility and

hence to be accounted for in
the business model.

B.

Logistic:
You have to deliver the product, safe and
secure, in the hands of the right guy in right time
Tactful Management Research Journal |

MERGER AND ACQUISITION IN E-COMMERCE SECTOR

frame. Regular post doesn't

offer an acceptable service
level; couriers have high
charges and limited reach.
Initially, you might have to
take insurance for high value
shipped articles increasing
the cost.

C.

Vendor
Management: However
advanced system maybe,
vendor will have to come
down and deal in an
inefficient
system
for
inventory management. This
will slow down drastically.
Most of them won't carry any
digital
data
for
their
products. No nice looking
photographs, no digital data
sheet, no mechanism to
check for daily prices,
availability to keep your site
updated.

D.

Taxation:
Octroi, entry tax, VAT and
lots of state specific forms
which accompany them.
These can be confusing at

times with lots of exceptions

and special rules

E.

Limited Internet access among customers and SMEs.

F.

Poor telecom and infrastructure for reliable connectivity.

G.

Multiple gaps in the current legal and regulatory framework

H.

Multiple issues of
trust and lack of payment
gateways:
privacy
of
personal and business data
connected over the Internet
not assured; security and
confidentiality of data not in
place.
CURRENT STATUS OFE-COMMERCE SECTOR IN INDIA
As already mentioned above,
growth
of
e-commerce
industry
has
been
phenomenally
high.
However, its growth is
dependent on a number of
factors and most important of
them is internet connectivity.
As per Forrester McKinsey
report of 2013, India has 137
million internet users with
penetration of 11%. Total
percentage of online buyers
to internet users is 18%.
Compared to India, China,
Brazil, Sri Lanka and Pakistan have internet population of 538 (40%),
79 (40%), 3.2 (15%) and 29 (15%)
millions respectively. Therefore, lower internet density continues to
remain a challenge for e-commerce.
According to Report of
DigitalCommerce, IAMAIIMRB (2013), e-commerce is
growing at the CAGR of
34% and is expected to touch
US$ 13 billion by end of
2013.
However,
travel
segment constitutes nearly
71.
of the transactions
of consumer e-commerce
industry, meaning thereby
that e-tailing has not taken of
in India in any meaningful
way. Share of e-tail has
grown at the rate of 10% in
2011 to 16% in 2012.

The figure, below, illustrates the growth in the market size since 2009

Tactful Management Research Journal |

MERGER AND ACQUISITION IN E-COMMERCE SECTOR

E-COMMERCE MARKET SIZE FROM 2009 TO 2013

(Figures in Crores. Percentages indicate share of the overall market size)
Dec2013
YEA
Dec 2009 Dec
Dec2
Dec2
(estimat
R
2010
011
012
ed)
Total market size
19,249 26,263 35,142 47,349 62,967
14,9
20,4
2,6
34,5 4
O
tryTrav
53
40
572
44 4
n
el
(78
(78
(76
(73 ,
l
%)
%)
%)
%) 9
i
0
n
7
e
I
(
n
7
d
1
u
%
)
s

Online Non-Travel
Industry

4,296
(22%)

5,823
(22%)

? E-Tailing

1,550

2372

? Financial Services

1,540

1848

? Classifieds

775

1085

? Other Online
Services

431

518

Industry surveys suggest that

e-commerce industry is
expected
to
contribute
around 4 percent to the GDP
by 2020. In comparison,
according to a NASSCOM
report, by 2020, the IT-BPO
industry is expected to
account for 10% of India's
GDP, while the share of
telecommunication services
in India's GDP is expected to
increase to 15 percent by
2015.
With
enabling
support,the
e-commerce
industry too can contribute
much more to the GDP.
. Major domestic ecommerce companies are
Flipkart, Snapdeal, ebay,
jabong, amazon, naaptol,
Homeshop18 etc.

As stated earlier, over 70%

of all consumer e-commerce

transactions in India are
travel related, comprising
mainly of online booking of
airline tickets, railway tickets
and hotel bookings. The
biggest players in the travel
category
are
Makemytrip.com, Yatra.com
and the IRCTC website for
railway bookings. Non-travel
related online commerce
comprises 25-30 percent of
the
B2C
e-Commerce
market.
The
unfettered
growth
Tactful Management Research Journal |

MERGER AND ACQUISITION IN E-COMMERCE SECTOR

of online travel category has

been possible because the
regulatory and infrastructure
issues do not impede its
growth. Also, it does not face
the

infrastructure
challenges
since the goods need not be
transferred physically.B2B
and B2C Classifieds (jobs,
matrimony, car, real estate
etc.) contribute to 5%,
whereas
other
online
services such as online
entertainment
ticketing,
online
food
delivery,
buying
discounts/deals/vouchers etc.
form 2 % of the overall
market.

FUTURE OF E-COMMERCE IN INDIA

It is found that countries
making in the top list of the
table of e-commerce have
required
technologies
coupled
with
higher
internet density, high class
infrastructure and suitable
regulatory framework. India
needs to work on these areas
to realize true potential of ecommerce business in the
country
Size of the total e-commerce
market in India is estimated
to expand at a CAGR of
About 40.0 percent during
201020
to
USD200.0
billion5. Likewise, India is
expected to record the
highest growth in the Asia
Pacific region during 2012
16.The trend would shift
with the online retail
segment contributing equally
to the total market size,
considering it is expected to
grow significantly in the
coming years. The B2C
segment would continue to
lead the e-commerce market,
thanks to the budding Indian
Internet
population,
supporting
demographics,
ease of payment modes and
customer-centric innovative
policies. In the coming
decade, we expect the sector
to
offer
much
more
revolutionary practices such
as Transacting with the help
of Mobile money, and having

access to virtual trial rooms.

Continue shopping online as
the sector is set to mature!!
Today, we are talking
about e-commerce progress
level of India, the seventhlargest by geographical area,
the second-most populous
country, and the most
populous democracy in the
world. Indian e-commerce
space percentage is getting
higher as more and more
online retailers enter the
market. Although this level
of entry in the e-commerce
market is good from a long
term
perspective,
the
challenge is that most
entrepreneurs don't have the
resources or capital to wait
for years before they can get
profits.
As foreign and domestic eretail majors such as Amazon
and Flipkart expand their
businesses
aggressively,
hiring activities are expected
to grow by over 30 per cent
in the sector and may help
create up to 50,000 jobs in
the next 2-3 years. The ecommerce companies are
also focusing on hiring
lateral talent from top IT
companies and niche retail
focused firms for their
technology functions while
they hire from FMCG,
consumer durables entities to
fill in marketing and logistics
positions. Besides, Growth
industries inevitably attract
youth and that significant
part of the hiring in ecommerce is at entry or
junior levels which accounts
for a relatively younger
profile of workforce. With
global e-commerce giants
entering India, demand for
talent will increase along
with compensation for top
executives
CONCLUSION
Internet economy will then

become more meaningful in

India. With the rapid
expansion of internet, ecommerce, is set to play a
very important role in the
21stcentury, the new
opportunities for M&A
Tactful Management Research Journal |

MERGER AND ACQUISITION IN E-COMMERCE SECTOR

that will be thrown open, will

be accessible to both large
corporations
and
small
companies. The role of
government is to provide a
legal framework for ECommerce so that while
domestic and international
trade are allowed to expand
their horizons, basic rights
such as privacy, intellectual
property, prevention of fraud,
consumer protection etc. are
all taken care of e-commerce
players need to make a quick
turnaround and minimise
fixed costs as much as
possible
.Accordingly,
different companies are
resorting
to
different
business
models.
Nevertheless, operating in a
highly
competitive
environment with very low
margins is not an easy job.
Of the 193 e-commerce sites
that were operational in India
in October 2012, 89 have
either shut down or merged
with other retailers,
essentially wilting under
pressure from high operating
costs.
Although
many
factors
support the growth of ecommerce in India, the
fledgling industry is faced
with significant hurdles with
respect to infrastructure,
governance and regulation.
Low internet penetration of

11 percent impedes the

growth of e-commerce by
limiting the internet access to
a broader segment of the
population. Poor last mile
connectivity due to missing
links in supply chain
infrastructure is limiting the
access to far flung areas
where a significant portion of
the population resides. High
dropout rates of 25-30
percent
on
payment
gateways, consumer trust
deficit and slow adoption of
online
payments
are
compelling
e-commerce
companies to rely on costlier
payment methods such as
Cash on Delivery (COD)
India needs to work on these
areas to realize true potential
of e-commerce business in
the country
REFERENCES
1.DIPP Discussion Paper on E-Commerce 2013-14
2.PANDEY
I.M
(2011)
,FINANCIAL
MANAGEMENT
Vikas
publishing Housing P. Ltd.
New Delhi, PP. 674
3.Eugene F. Brigham, Joel F. Houston, 12th edition, Fundamentals of
Financial
4.Management South-Western, a part of Cengagel earning, USA,
PP.656-658
WEBSITES
1.http://www.iamai.in
2.http://en.wikipedia.org
3.http://economictimes.indiatimes.com/industry/jobs
4.http://www.ibef.org
5.http://m.economictimes.co
m/opinion/commentsanalysis/flipkart-myntramerger--the-imminentidentitycrisis/articleshow/msid34735436,curpg-2.cms
6.http://www.thehindubusine
ssline.com/features/smartbu
y/tech-news/ecommercehiring-to-grow-30onamazon-local-playerspush/article6046326.ece
7.http://www.thehindu.co
m/business/Industry/flipk

art-buys-out-myntra-for300-m/article6037600.ece
8.http://www.nextbigwhat
.com/flipkart-myntraacquisition-valuation297/.
9.http://businesstoday.intoday
.in/story/flipkart-buysmyntra-impact-on-fashion-eretail-sector/ 1/206484.html
10.http://www.scribd.com/doc/54549535

Priyanka

Assistant Professor , Ramjas College , Universtiy Of Delhi.

Khushboo Sagar
Assistant Professor , Shri Ram College Of Commerce ,
Universtiy Of Delhi.

Richa Verma

Assistant Professor , Ramjas College, Universtiy Of Delhi.

Tactful Management Research Journal |