Snapdeal acquires FreeCharge to build a larger play on mobile commerce

8 Apr, 2015

E-commerce marketplace Snapdeal has acquired mobile recharge platform FreeCharge in what is being billed as the biggest acquisition in the internet business in India, surpassing the previous big buy of Myntra by Flipkart last year.

Flipkart had not declared the deal value but separate media reports had pegged the deal value to be $300-400 million. More recently, Ola Cabs acquired TaxiForSure for $200 million in what was largely a stock transaction.

FreeCharge, run by the Mumbai-based Accelyst Solutions Pvt Ltd, is one of India's top recharge platforms allowing users to pay their mobile, DTH and other utility bills across most major operators. Last November, the firm said it has 13 million registered users and almost 80 per cent of its transactions come from mobile users. It was aiming to hit 1 million transactions per day mark in early 2015.

It will continue to function as an independent platform, the company said.

Snapdeal did not disclose the deal value but last month separate media reports had said, citing unnamed sources, that the deal could be worth Rs 2,800 crore or more (well over $400 million). Such deals typically involve a small cash component and a large stock transaction.

An email sent to the company spokesperson for further details on the transaction did not elicit a response.

What it means for Snapdeal?

For Jasper Infotech Pvt Ltd, which runs Snapdeal and had raised close to $1 billion across multiple rounds last year, this is its boldest and biggest bet yet. It now claims to be the largest mobile commerce platform in the country with this purchase.

"With this game-changing partnership with FreeCharge, we have significantly enhanced our user base and now offer all our customers access to the widest selection of products and services online, making digital commerce an even more intrinsic part of their lives," said Kunal Bahl, co-founder and CEO, Snapdeal.

The deal would significantly push up the transaction volume for Snapdeal as a group. The recharge business comes strapped with high volumes with small ticket size mobile recharges by pre-paid mobile subscribers and low margins.

With this deal, it is looking to position itself as a stronger player in the mobile commerce business than its arch rival Flipkart, which has restricted itself to its core e-com business, at least till now.

The firm would now compete more directly with a venture like Paytm, run by One97 Communications, which recently got an investment commitment of $635 million from Alibaba and existing investor SAIF Partners. Paytm runs an m-com marketplace besides its core business of mobile and DTH recharges, bus ticketing and mobile wallet.

Snapdeal, which sealed a $627 million (Rs 3,846 crore) investment from Japanese telecom and internet firm SoftBank Corp in October 2014, has been aggressively acquiring other ventures since January this year.

Last month, it acquired a majority stake in Gurgaon-based digital financial products distribution startup RupeePower. It also bought a minority stake in logistics firm QuickDel Logistics Pvt Ltd, which runs operations under the GoJavas brand. GoJavas is the former in-house logistics unit of lifestyle e-tailer Jabong.

Early this year Snapdeal also bought lifestyle e-tailer Exclusively.in. Exclusively.in was previously acquired by Myntra two years ago but was sold back to its founders and had been operating independently since then. It adds to Snapdeal a larger play in the lifestyle e-com vertical.

In the past, Snapdeal also picked up a stake in Smartprix Web Pvt Ltd, which runs online product and price comparison site Smartprix.

What it means for FreeCharge?

FreeCharge was not cash starved, unlike some other internet businesses which were forced to sell as they failed to garner fresh funding.

Just two months back FreeCharge raised $80 million in Series C round of funding from a group of investors, including San Francisco-based hedge fund Valiant Capital Management and Hong Kong-based hedge fund Tybourne Capital Management. Its other investors include Sequoia Capital, ru-Net and Sofina, which had also participated in the last round.

The company, which had raised Rs 20 crore from Sequoia Capital in January 2012, obtained a huge round which was five times bigger in September 2014. It pulled in $33 million in its Series B round from existing investor Sequoia Capital, with participation from Belgium-based investment company Sofina, besides Russian VC firm ru-Net.

The deal to go with Snapdeal can be seen more as a strategic play to align with another internet firm.

Kunal Shah, co-founder and CEO, FreeCharge, said, "We have been ahead of the curve and as a result, 85 per cent of our transactions originate from mobile; these transactions have very high repeat customer behaviour. The partnership with Snapdeal comes at the right time. I foresee this as an opportunity to accelerate our road map in India and reach out to millions of users across the country."

Unlike Paytm, which has added a mobile wallet and a marketplace for goods and MobiKwik, which has parallely positioned itself as a mobile wallet, FreeCharge continues to bet on the recharge business. However, it has been amid several strategic moves including acqui-hires, big funding and top level lateral hirings.

It has been trying to push itself as a mobile marketing platform with the recently unveiled transactional advertising platform Delights, which is akin to a cross-promotional couponing business. It was also charting plans for overseas expansion and had set its eyes on other emerging markets.

What it means for investors?

Given that a large component of the transaction involves issue of Snapdeal shares to the current stakeholders of FreeCharge, the deal would bring a new set of investors into the e-com firm. While Tybourne is a common shareholder of both the firms, all other FreeCharge investors would come as new shareholders in Snapdeal. This would be particularly significant for Sequoia Capital, the original VC backer of FreeCharge. Although Sequoia is the most active early stage VC investor in the country and counts some marquee bets in internet including Just Dial, in the bustling e-com sector it was one of the few large VC firms that have not backed any of the top horizontal e-tailers.

With this deal, it gets a stake in Snapdeal to add to its exposures in several vertical e-com players. Indeed, most recently it has also backed Groupon's Indian arm in a fairly unusual deal for an MNC.

Among others, Sofina is another interesting case as it would now count both Snapdeal and Flipkart as portfolio firms.

(Edited by Joby Puthuparampil Johnson)