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Walmart Buying Out Flipkart : Why Is This So Special?

Sunday Morning Coffee & Insights

The news about Walmart buying a majority stake in Flipkart, a homegrown e-commerce startup of India, is gaining momentum last couple of weeks.

While it has not been confirmed yet officially, a Bloomberg report stated that the Flipkart board has approved an agreement to sell about 75 percent of the company to a Walmart Inc led group, citing people familiar with the matter.

The anticipated buyout, if materializes, would be a very special one in several ways.

Firstly, this would mark the biggest buyout in the Indian startup ecosystem with Flipkart expected to be valued at around $20 billion and the US giant investing $12-$15 billion for a controlling stake.

If the Walmart led buyout goes through successfully, this would also be one of the most successful exits for an Indian startup, giving substantial returns to the investors and a handsome payback to founders.

At the said valuation, the founders Mr. Sachin Bansal and Mr. Binny Bansal can expect atleast $1 billion each, giving them a much deserving entry to the billionaire club. Softbank, a major shareholder holding 20% stake in Flipkart would see its investment of $2.5 billion grow to atleast $4 billion, in less than a year of its investment.

The successful exit would give a big push for the start-up ecosystem in India, boosting the confidence among other startup founders and sending positive signals to global investors, bringing in big ticket investments in future. Both the founders themselves, upon exit, will have adequate financial strength to invest in other promising start-ups or they may build new start-ups from scratch thus giving momentum to the overall ecosystem.

Apart from investors & the startup world, this would also be a special one for general consumers.

They will get to see another global brand leading the e-commerce race in India, along with Amazon, giving each other a tough race. With the increase in competition, the natural beneficiaries are consumers who can expect greater range of products, further discounts and improved customer service as these brands will want to compete on all the fronts.

Walmart being a global retail giant, will bring to the table it’s competence and experience in retail operations and logistics, thus making the e-commerce space more efficient.

While it’s purely a speculation, it’s highly likely that Walmart may re-brand Flipkart with it’s own brand name and may even take it global.

How is this deal a special one for Walmart itself?

Walmart currently faces stiff competition with Amazon in the US as more and more consumers are inclining towards online purchases. Thus, the emerging markets like China and India become very crucial for Walmart’s future growth.

With FDI policy in India restricting overseas investors to a maximum of 51% investment in multi-brand retail, Walmart currently only serves the B2B segment. It was loosing out big on the e-commerce retail market which is expected to grow to $200 billion by 2026 (source: IBEF report).

Flipkart would be a great launchpad for Walmart to enter into the highly prized Indian e-commerce market, and immediately take the coveted Number #1 position leaving Amazon at #2.

Building an e-commerce marketplace model like Flipkart or Amazon in India would take Walmart several years, and still not guarantee the top slot given the stiff competition. With the buyout, Walmart is getting all it wants, outright. This may also explain the reason for the high valuation at which Walmart is expected to buyout Flipkart.

Finally, let’s cross our fingers and expect the deal really turns out to be a very special one, to all the parties.

Also Read: Who Gets The Biggest Cut Of Pie – Amazon Eyes 55% Stake In Flipkart!

Keep watching this space for more updates as the story unfolds, we at CoffeeChatsAsia will continue to provide refreshing insights and analysis on startups in Asia Pacific, to all our earnest readers.

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