The Indian startups are celebrating the acquisition of Myntra by flipkart, some estimates put the valuation of the deal at $370mn. Myntra, the older of the two, is in a high margin category – fashion, which is also one of the largest categories in the offline market. It has made some great moves by introducing its private label and celebrity lineups, but it is also has higher returns, resulting in high operating costs.
Did shareholders of Myntra get the maximum value from the acquisition? Most acquisitions we hear in media have competing bidders and Myntra could have looked for other buyers and not just Flipkart. As news of the deal has been around for months before the deal was finalized, both had invested/sunk time, money and reputation into the deal and were in high pressure to close the deal. Myntra could have been bought over by one of the large conglomerates that are also in offline fashion retail or international investors, these have deep pockets for investments and innovation. With competing bidders, the price discovery would have been more fair and in this case Myntra shareholders may have benefited.
Disclosure: Both Myntra and Flipkart are private companies sharing very little financial information, so these comments are based only on publicly available information.
Why are banks pruning their branches after years of growing them? What is the purpose of a bank? To grow savings, get a loan, make and receive payments.
With crowd funding sites like zopa, lending club, ilend and umpteen other crowd funding sites, individuals can cut the middleman and take direct control of their investments or get a loan. Venture capital, PE and debt funds are better capable of evaluating the risks of investing and lending to businesses. NBFCs (Non Banking Financial Institutions) in India – an umbrella that includes micro financial institutions (MFIs), Asset backed financiers (housing, auto and consumer) have better infrastructure like geographical coverage, understanding the market, credit score of borrower, than banks to cater to customers. Focused lenders that lend to infrastructure, agriculture and export sectors are better placed in their sectors than banks. Crypto currencies can’t be written off and will comeback as they offer an almost no transaction charge transfer of money. New payment solutions like mpesa by Vodafone and Square (and the look alikes) serve merchants better than solutions provided by banks. So why do we need a conventional bank in its current form?
Indian VC/PEs are excited that with the new government with clear mandate set to take office, the IPO markets in India will be better in the next 6-8 months. Is it the best exit for VC/PEs? IPOs usually involve selling a minority stake to the public and fail to extract and synergy control premium that majority stake sales can elicit. Public issue of equity involves high transaction costs and carries the risks of market conditions for success. The other common exit option is secondary sale, but PE firms at the buy side are shrewd negotiators and can walk out of a deal if they do not like, this limits the premium for the seller. Management Buy In is another possibility, but will usually involve a PE, limiting the upside potential.
Trade sales seem to be better – strategic players who have interests in the sector and company pay a higher premium for control and synergy and deals involve very little payout to the bankers and legal team, bettering the returns for the investors.
The usual checklist of due-diligence before recommendation for deals/investments involves a series of checks in accounting, actual check of inventory/bank balance and letters from vendors etc. However, the potential target must also be evaluated on certain qualitative parameters like the business model and environment, macroeconomic and social consideration and fit in the portfolio for the acquirer.
Below is a list of a few important considerations
Business model and environment
- Is there any venture like businesses that has promising high growth?
- Any Intellectual Property that can be leveraged for new streams of revenue?
- Will the current management team continue?
- Is there major re-structuring of business required?
- What is the prospect of the business – Is this a declining industry?
- When is the next level of large capital investments required for the current growth figure?
- Credit ratings of the business
- Evaluate investments made by the company in other businesses?
The business of financing pre-owned trucks has given stellar returns and attracted investments from both private equity and Development Finance Institutions (DFIs)1. It still has immense potential in a large and growing, but highly unbanked economy like India. The higher risk in providing capital to the unbanked single truck owner, who does not have access to credit from institutions is compensated by the higher interest spreads due to ability to raise capital cheaply from DFI, securitization of portfolios and the satisfaction of doing social good by lending at rates lower than that provided by private/individual financiers.
Last week, my brother received his slick iphone case ordered online for Rs. 300, which was real value for money deal. There is nothing unusual about ordering online these days, but here the case was ordered on aliexpress.com and shipped from China with no shipping charges by China post, the only things he had to bear with was the delivery took 4 weeks, he had to pay in advance only by credit card and any additional duty levied by Indian authorities would have to be paid to the courier. In his case, there was no duty charged.
If the home grown e-commerce companies – snapdeal and flipkart are having sleepless nights after amazon started in India, they now have to also compete with a company whose global revenue (including its parent – Alibaba) is more than that of amazon and ebay combined. Agree, aliexpress Continue reading
With 80 million new customers in 2013, the global auto market is a larger than that of wearable and personal fitness devices. Automobiles also collect a large amount of data that can be harnessed to provide feedback/analysis to driver, easier processing of accidental insurance claims, targeting advertising and endless application limited only by imagination.
One of most important ingredient of a startup is finding the right people and Bangalore has few thousand engineers working with Bosch, Continental and Delphi who come with the right skills. The existing ecosystem of entrepreneurs, VCs and success of many tech startups in Bangalore can make it the global hub of automotive startups. Moonraft, a startup in design and technology based in Bangalore, has developed Smartphone based telematic application to control car functions in Mahindra’s electric car. Continue reading