Large PE deals in e-commerce push up 2014 M&A table

by / Monday, 16 February 2015 / Published in News & Updates

Year 2014 witnessed the largest private equity (PE) deals in the fast-growing e-commerce space.

According to Dealogic data, the information technology (IT) space, including e-commerce, witnessed 240 deals worth $3.8 billion in 2014, eight per cent of the total deal size of $48 billion.

“E-commerce has been witnessing fairly strong top line growth and, hence, has attracted strategic and financial investor interest,” says Pramod Kumar, managing director and head of advisory at Barclays.

Flipkart’s $1-billion fund-raising in July 2014, led by Tiger Global, was the 10th largest deal in 2014 mergers and acquisitions (M&A) deal table. Other large deals in e-commerce included the $700-million fund-raising by Flipkart in November, a $636-million investment in Snapdeal, and $563-million investment in Unitech IT Park SEZ by Brookfield Asset Management. Canada Pension Plan Investment Board had invested $373-million in Kotak Mahindra Bank. The $4-billion Sun-Ranbaxy merger was the largest deal.

Deals in IT contributed seven per cent of the deal size ($32 billion) last year, with deals worth $2.2 billion.

Mahesh Singhi, founder and managing director of Singhi Advisors, said: “The principal reason for strong investor interest in the e-commerce sector is the space being benchmarked with new-generation players from China and the US, which have generated huge wealth in their valuations, unlocking large capital for investors, who are now looking for the next Alibaba in India.” The e-commerce route was also used as a surrogate means to enter retail, he said, as foreign direct investment in modern retail is not allowed.

The sector had witnessed consolidation in 2014. In May, Flipkart had acquired Myntra. Flipkart’s deal was termed as a move to challenge the rapid expansion of global giant Amazon in India. Similarly, Letsbuy was acquired by Flipkart and Amazon is reportedly in talks to acquire fashion portal

“We are witnessing signs of consolidation as the ability to scale up and attract capital has become important. We will witness stronger M&A, as well as capital market activity,” said Barclays’ Kumar.

According to a recent report from Spire Research & Consulting, the Indian e-commerce sector was set to see consolidation over the next four to five years, with only two or three big entities surviving.

The sector might witness more large deals in this space as investor appetite is high.

“I don’t see this cooling in 2015,” said Singhi, “As capital-raising will be a compulsion and not a choice, having fuelled the growth path for many start-ups in niche segments.” However, the risk is higher in the e-commerce space in India, which is still nascent. “If any of the large investors stop infusing fresh capital in the sector, and if there are regulatory interventions, it will increase the risk for investors in this space,” Singhi added.

India’s e-commerce market is expected to touch $20 billion in 2015, up from $11 billion last year.

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