A PROJECT REPORT ON

MERGERS AND ACQUISITIONS

(MACR)

OF

FLIPKART AND MYNTRA

SUBMITTED BY

ERICK DSOUZA

(1018)

BACKGROUND OF FLIPKART ACQUIRING COMPANY

 Flipkart The Multi- Category Virtual Store

Flipkart is an Indian e-commerce company and headquartered in Bangalore,

Karnataka was started in year 2007 by Sachin Bansal and Binny Bansal IIT
Delhi alumni who had jobs with Amazon before starting Flipkart. The
founders had spent 400,000 to set up the business. It is considered as the e-
commerce company that made online shopping popular in India. The
business was formally incorporated as a company in October 2008 as Flipkart
Online Services Pvt. Ltd. During its initial years, Flipkart focused only on
books, and soon as it expanded, it started offering other products like
electronic goods, air conditioners, air coolers, stationery supplies and life
style products and e-books. Flipkart's offering of products on cash on delivery
is considered to be one of the main reasons behind its success. Flipkart also
allows other payment methods - credit or debit card transactions, net
banking, e-gift voucher and card swipe on delivery. Flipkart now employs
more than 4,500 people. Initially, the founders had spent 400,000 to set up
the business. Flipkart has later raised funding from venture capital funds
Accel India (US$1 million in 2009) and Tiger Global (US$10 million in 2010
and US$20 million in June 2011). In August 2012, Flipkart announced the
completion of its 4th round of $150 million funding from MIH (part of Naspers
Group) and ICONIQ Capital. The company announced, on 10 July 2013, that it
has raised an additional $200 million from existing investors including Tiger
Global, Naspers, Accel Partners and Iconiq Capital. In July 2013, Flipkart
raised USD 160 million from private equity investors, taking the total to USD
360 million in its recent fund raising drive to build and strengthen technology
and bolster its supply chain. In October 2013, Flipkart raised an additional
$160 million from new investors Dragoneer Investment Group, Morgan
Stanley Wealth Management, Sofina SA and Vulcan Inc. with participation
from existing investor Tiger Global. With this, the company raised a total of
$360 million in its fifth round of funding, the largest investment raised by an
Internet company in India. The company valued at approx. 99 billion (US$1.7
billion) (Nov 2013), and plans to use the capital raised to improve its
technology and supply chain capabilities, enhance its end user experience
and for hiring.

Some interesting facts:

Flipkart's website is one of the top 10 Indian websites.

Flipkart has launched its own product range under the name "DigiFlip",
offering camera bags, pendrives, headphones, computer accessories, etc.

The first product sold was the book Leaving Microsoft to Change the World,
bought by VVK Chandra from Andhra Pradesh.

In November 2012, Flipkart became one of the companies being probed for
alleged violations of FDI regulations of the Foreign Exchange Management
Act, 1999.

On average, Flipkart sells nearly 20 products per minute.

Flipkart had always used acquisition as a strategy for growth and

consolidation. Before acquiring Myntra in May 2014, it had acquired the
following small players in e-commerce.

2010: WeRead, a social book discovery tool

2011: Mime360, a digital content platform company

2011: Chakpak.com, a Bollywood news site that offers updates, news,

photos and videos. Flipkart acquired the rights to Chakpak's digital catalogue
which includes 40,000 filmographies, 10,000 movies and close to 50,000
ratings. Flipkart is not being involved with the original site and does not use
the brand name.
 2012: Letsbuy.com, an Indian e-retailer in electronics. Flipkart has bought
the company for an estimated US$25 million. Letsbuy.com was closed down
and all traffic to Letsbuy have been diverted to Flipkart.

2014: Acquired Myntra.com Marking the biggest consolidation in the e-

commerce space in India, homegrown e-retailer Flipkart acquired online
fashion retailer Myntra in an estimated Rs 2,000 crore deal.

BACKGROUND OF MYNTRA ACQUIRED COMPANY

Myntra The Fashion Hub

Myntra.com is an Indian online shopping retailer of fashion and casual

lifestyle products, headquartered in Bangalore, Karnataka. Myntra, was
founded in 2007 by Mukesh Bansal and along with Ashutosh Lawania and
Vineet Saxena. The lifestyle and fashion online retailer has a run rate of $100
million a year, growing at 20 per cent annually. From 2007 to December
2010, Myntra.com was in the business of personalization of products online
The products ranged from T-shirts, mugs, greeting cards, calendars, key
chains, diaries etc. However, in 2010, the company expanded its catalogue
to retail fashion and lifestyle products. Myntra.com currently offers close to
70,000 products from more than 700 leading Indian, international and
designer brands. The portal receives over 50 million hits every month and
services over 9,000 pin codes across the country. In 2013, Myntra acquired
San-Francisco-based Fitiquette, a developer of virtual fitting room technology.
In November 2013, Bollywood star Hrithik Roshan joined forces with online
shopping portal Myntra.com to exclusively launch and manufacture his active
lifestyle apparel and casual wear brand HRX. Myntra launched a brand
campaign with its first TVC in July 2011. The commercial 'juxtaposes new-age
fashion with old-world grit' and positions Myntra as a 'fashionable new age'
brand. Myntra's second campaign, with the tagline "Ramp It Up", was
launched in October 2011 with a TVC. The new ad scored high on fashion
quotient and the core message was to communicate the launch of the
Autumn Winter 2011 collection on Myntra.com. In February 2012, Myntra
also rolled out an OOH (out of home) campaign across Tier 2 cities, to build
brand awareness and promote online shopping. In June 2012, Myntra
launched its third campaign. Created by Taproot, the communication
emphasises the benefits of buying online, and is titled 'Real life mein aisa
hota hai kya', in which they offer free shipping, cash on delivery, 30 day
return & 24 hours dispatch. Myntra continued the 'Real life mein aisa hota
hai kya' theme in its next campaign in October 2012 and extended it to
showcase its wide catalog and hassle-free Returns Policy. In February 2014,
Myntra raised additional $50 Million Funding from Premji Invest and few other
Private Investors Myntra.com is an aggregator of many brands. Its business
model is based on procuring current season merchandise from various
brands and making them available on the portal at the same time as in
respective retail brand outlets. All these products are offered to customers on
MRP. It ships 20,000 items a day across 400 cities, with an average order of
Rs 1,600. Myntra focused exclusively on lifestyle and fashion products, which
have a margin as high as 40 per cent; its strategy to charge for shipping
products below a certain price range adds to profitability and reduces
returns. Though the company does not follow a marketplace model but the
relatively more expensive inventory-based model to ensure quality and
timely delivery, it returns the unsold inventory. Industry experts felt that the
company Myntra is different from others such as Flipkart, as it is not a
horizontal player and the focus is only on a few categories such as apparel.
Also, the addition on private labels is also leading to higher margins for
them. However, Myntras problem is the same as those of its peers
profitability. Armed with an understanding of start-ups, the team is trying to
build a Google-like work culture, while ensuring Myntra remains hawk-
eyed on its focus areas and market potential.
Some interesting facts before M & A:

Myntra Moved from offering personalised products to fashion and lifestyle

retailing by the last quarter of 2010

Myntra received a total of $75 million investment by 2013 over multiple

rounds

Major investors: Accel Partners, Tiger Global, Kalaari Capital and IDG
Ventures

Run rate of $100 million a year, growing at 20% year-on-year24

Gets 12,000 orders that roughly translate into shipping 20,000 items daily
across 400 cities with an average order of Rs 1,600.

Competes with Flipkart, Jabong, Fashionandyou, etc

Myntra.com was announced as a winner of the Red Herring Global 100

award*. (* Red Herring announced its Global 100 awards in recognition of
leading private companies from North America, Europe, and Asia, celebrating
these startups' innovations and technologies across their respective
industries)

CNBC - TV18 awarded Myntra.com as one of the Hottest Internet

Companies of the Year (2012) at the Mercedes - Benz CNBC - TV18 Young
Turks Awards.

Myntra.com won IAMAI's Best Ecommerce Website of the year award for
2012 at the 7th India Digital Summit, 2013.

RELATEDNESS OF THE PARTIES

The rapid growth of e-commerce in India is supported by an increasingly

sophisticated ecosystem that speeds consumer products makers goods to
online shoppers. The sector is classified into four major types, based on the
parties involved in the transactions Business-to-business (B2B), business-
to-customer (B2C), customer-to business (C2B) and customer-to-customer
(C2C). The emergence of well-designed user-friendly online trading, payment
and delivery services (see Fig. 1).

Fig. 1: Source Technopak 2013.

E-Commerce (B2C, C2C) revenues have been growing at a whopping 50%

year on year with USD 10billion in 2011. Technopak estimates that e-tailing
in India will grow from the current USD 0.6 billion to USD 76 billion by 2021,
i.e., more than hundredfold. The key reason for this disruptive growth lies in
the fact that the market enabling conditions and ecosystem creation for e-
tailing will outpace the same for corporatized brick & mortar retail. This
growth will offer many advantages to the Indian economy, besides bringing
in immense benefits to consumers. The growing need of consumer in various
zones, travelling, jobs, entertainment and changing trends in fashion, has
attracted customers to get comfortable ordering online. The companies have
played a vital role in building a critical mass of Indian users and they will
continue to evolve. Key competitors of market Jabong, Flipkart, Yebhi and
makemytrip has made a tremendous growth in case of turnovers (see Fig. 2).

Fig. 2: Source CRISIL 2014.

Mobile phones are proving to be an important factor in the e-commerce

ecosystem owing to its easy compatibility with the Internet. India has more
than 900.0 million mobile users, of which around 300 million use data
services. This number is expected to touch 1200 million by 2015. Also, more
than 100 million mobile users are expected to use 3G and 4G connectivity in
the coming few years of the total 900.0 million mobile users, a meager 27.0
million are active on the Internet. Moreover, only 4.0 per cent of the active
mobile internet users buy products through mobiles. However, mobile
shopping is on upward trend and is expected to increase fivefold to
20.0 per cent in the medium term [IBEF 2013 also see Fig. 3 & 4]
Fig. 3: Source World Bank, IAMAI, Aranca Research

Fig. 4: Source IWS, 2010, BMI, ITU, Mckinsey

PRIOR RELATIONSHIPS OF THE PARTIES

There were significant synergies between the two companies especially on

brand relationships and consumer experience. Mr. Mukesh Bansal in one of
his interviews to The Hindu said that on its own Myntra.com held 30 per cent
of the market share, but together the two companies would account for 50
per cent of the online fashion market.

According to the Economic Times, Flipkart loses Rs 70 crore a month while

Myntra is not just bleeding but also rapidly losing market share to
competitors like Jabong and other fast-rising fashion e-tailers. In 2013,
Flipkart lost Rs 281 crore (US$47 million) on revenues of Rs 1,180 crore
(US$197 million) while Myntra lost Rs 134 crore (US$22 million) crore on
revenues of Rs 212 crore (US$35 million) which is why, combining forces - in
other words, sharing a logistics and technology backbone, as well as
customerswill stem that tide to some extent, is the thinking.

So far, the strategy in e-commerce has been to raise money like gangbusters
(Flipkart raised US$541 million in five rounds of funding while Myntra has
raised US$125 million) in the hope of simply out-muscling the market, but as
Flipkartor rather, the company's investors Accel Partners and Tiger Global
Fund have found out, there is a limit to doing that.

One reason why that's the case is because of a certain shark named
Amazon that has started patrolling the waters in India. After the China
disaster Bezos is apparently very focused on making India a gargantuan
success and has already made huge gains in its supply chain, advertising
and customer acquisition. Apparently, the US retailer, in just one year has
received a staggering fifty-percent of Flipkarts website visitors.

RATIONALE FOR THE MERGER

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 $130-million apparel e-retailing industry is growing
fast. However, fashion is highly fragmented and under-penetrated. 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.

GEOGRAPHIC SCOPE OF THE MERGER

 VALUATION & FINANCING THE MERGER

(On 22nd May 2014 Flipkart acquired Myntra in a deal estimated to be

around $300 Mn) Both companies are running at a very fast speed and
winning on the competitive landscape, so we dont want to change that at
all - Sachin Bansal (Co-Founder FlipKart.com).

From a start-up with an investment of just four lakhs rupees, Flipkart has
grown into a $100 million-revenue online retail giant in just five years. The
combined entity has annualized sales of $1.5 billion, which brings them
within touching distance of much older offline ventures like the Future Group
( Big Bazaar), Reliance and Aditya Birla Group.

Post-merger the team are very clear that the businesses have to be executed
independently and preserve a different culture. Independently, Myntra and
Flipkart's fashion category as billion dollar businesses each in two-three
years. While Myntra's fashion offering continues to be more on the premium
side. Flipkart offers an array of discounted fashion brands. The goal at
Flipkart is to win the horizontal battle while at Myntra is striving to win the
vertical battle. Teams will remain different for both.

Flipkart, India's biggest e-commerce player, in first week of August 2014

announced it has raised $1 billion or Rs 6,000 crore ($1 = Rs 60) in fresh
funding, the biggest ever by an Indian internet company in a single round.
And it is aiming much higher. Flipkart is now expected to be valued at $5
billion (Rs 30,000 crore), according to some estimates. The company has
seen a turbo-charged growth, hitting an annualised sales mark of $1 billion
(Rs 6,000 crore) in 2014 - a year ahead of its target. Besides looking at fresh
acquisitions, Flipkart could use the fresh funding for expanding its
operations. Acquisition will be an important part of our growth strategy. For
Flipkart, the competition is also hotting up. Besides Amazon's expanding
presence in India, world's largest retailer Wal-Mart too has begun online sales
in the cash-and-carry segment in some cities. Reliance Retail, India's largest
retailer by revenues, is also expected to significantly increase its online
presence.

SUMMARY AND CONCLUSIONS

Internet economy will then become more meaningful in India. With the rapid
expansion of internet, e-commerce, is set to play a very important role in the
21stcentury, the new opportunities for M&A 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 E-Commerce 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 e-commerce 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