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Even as Snapdeal is about to conclude its due diligence for the potential acquisition of smaller rival ShopClues, it looks highly unlikely that the all-stock deal will go through, said sources privy to the latest developments.
The deal, which was initiated by Nexus Venture Partners, an investor in both the e-commerce firms, may not add much value to Snapdeal for multiple reasons, sources involved in the negotiations said.
To start with, Snapdeal already delivers 8-10 times ShopClues’ order volumes. , Snapdeal’s customer base also overlaps with ShopClues’, as both target shoppers in Tier-II,-III and -IV locations with value-priced product assortment from small sellers.
To complicate matters, a third of ShopClues’ shipments are returned by the customers.
Outstanding debt
Even if Snapdeal overlooks all of these factors, it would still have to reckon with ShopClues’s outstanding payments to its marketing, logistics and technology vendors. If one were to add the tax liabilities too, the total outstanding aggregates $40 million-50 million, revealed sources.
This means that if Snapdeal decides to acquire ShopClues, it will have to pay out cash to settle these liabilities or face the prospect of a messy, long drawn out litigation process.
ShopClues exited FY19 with 550-600 employees on board and 20,000-25,000 orders per day. Since then, its inability to raise funds has resulted in a steady decline in orders, which now stand at 15,000 per day. The employee count has also come down to 500.
In comparison, Snapdeal — which has around 750 employees — delivers around two lakh orders per day, as per analyst estimates. In FY18, ShopClues clocked revenue of ₹273.3 crore, while its expenses rose to ₹481.4 crore, leaving the e-tailer with losses of ₹208.1 crore. In the same period, Snapdeal posted a revenue of ₹514.5 crore, while its expenses shot up to ₹661.9 crore. As a result, the company posted a loss of ₹147.4 crore, according to RoC filings accessed by paper.vc.
“The extent of financial liabilities, potential litigation and poor metrics of online sales, all add up to make prospects of the deal coming through very grim for ShopClues,” said one of the sources. Snapdeal declined to comment on the status of the due diligence.
Major exits
ShopClues has been witnessing a steady outflow of top management executives over the last 6-12 months. Its CFO Deepak Sharma left to join Nysaa as its Group Financial Officer earlier this year, while its VP- Product Management Arun Goel will soon take up a government job. Last year, its SVP for Categories, Nitin Kochhar; Senior Director – Category Management, Raunak Raheja; and head of corporate communications, Sayantan Sinha, also quit. With a skeletal leadership team held together by the two founders — Sanjay Sethi and Radhika Aggarwal — a low cash position and no deal in sight, ShopClues is faced with the prospect of laying off a major chunk of employees in order to survive.
ShopClues, in an emailed response, said: “The story is speculative in nature and not based on facts. In the last 60 days, about 50 new employees have joined the company and there has been no departure in the leadership team in the last eight months. For the record, ShopClues does about 65,000-70,000 orders per day. Besides our marketplace business, our recently launched social commerce platform EzoNow has scaled to more than five lakh resellers, while our SmartShip business is now doing 10,000 orders per day.”
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