Consolidation seems to be the buzzword in India’s ecommerce market at the moment. As Snapdeal continues to await its fate, digital payments major Paytm has signed a non-exclusive term sheet to acquire Snapdeal’s payments arm FreeCharge. As per an Economic Times report, this deal is expected to be an all-cash deal.
As per the report, sources have told ET that Paytm will begin financial and commercial due diligence of the deal next week. And if the deal is successful, it is estimated to be between $45 million to $90 million and could be finalized in a month.
But the term sheet being non-exclusive, Snapdeal will be able to hawk FreeCharge to other potential buyers as well. There have been several reports of MobiKwik too, approaching Snapdeal for a merger with FreeCharge in what would be an all-stock deal.
ET reports that the company has also approached global payments major PayPal, which had almost picked up a majority stake in FreeCharge. But the deal fell through due to differences over valuations.
Paytm, founded by Vijay Shekhar Sharma, is in advanced stages of discussions to raise up to $1.9 billion from Soft-Bank. This could value it between $8 billion and $9 billion.
Snapdeal acquired FreeCharge back in April 2015 for about $500 million. However, along with Snapdeal, FreeCharge has also been struggling to stay afloat.
While it forecasted seven million daily transactions and gross merchandise transactions of Rs 20,000 crore by the end of FY17, it has estimated to have recorded Rs 300 crore in transaction revenue and about 12 million in volume in April. On the other hand, Paytm claims that it did 255 million transactions till April 26.
As per the ET report, FreeCharge has about 218 million wallet users, and is more than double the size of closest competitors like MobiKwik. So even if it is sold at the upper end of the range, it will be a steep fall in valuation for the company.
But the sale of FreeCharge will bring much relief to troubled Snapdeal, while its biggest investor SoftBank is orchestrating its sale to rival Flipkart. It earlier even tried to strike a deal with Paytm but that did not go through.
Snapdeal is also in talks with several parties to divest a majority stake of entirely sell its in-house logistics arm Vulcan Express.