By Madhu
In recent years, India’s eCommerce sector has witnessed unprecedented growth. Mergers & Acquisitions have played an important role in this growth. The recent deal between Walmart and Flipkart is one of the biggest deals in the history of India’s eCommerce market. This M&A deal was powered by strategic thinking and lots of planning.
This article will explore the essential elements of M&A, as well as key M&A strategies for the eCommerce industry.
M&A: Types of Buyers
To understand M&A strategies, it’s important to know about two main types of buyers:
- Strategic Buyers: Strategic investors looking to acquire goods or expertise, develop markets, or attract new customers.
- Financial buyers: Such transactions take place to meet future financial goals, viz. operating revenue growth or improved cash flow. Buyers purchase a business to sell or list it on the stock market with IPO at a later date. They are usually professional investors, such as:
- Private equity (PE) firms: They buy and hold businesses before selling them for a profit.
- Venture Capital (VC) firms: They prefer to invest in riskier deals and small, emerging companies with strong growth potential.
Successful M&A: Essential Elements
Some essential elements to keep in mind for a successful M&A:
- Deal should be advantageous to all parties: If one business seems to be getting a lot more than it is giving up, it could be a red flag that should be addressed early.
- Alignment with long-term objectives: As a strategic undertaking, an M&A deal requires negotiators to provide a clear understanding of how it would help both companies in the long term.
- Failover plan: There should always be a backup plan, so both parties can negotiate from a position of strength.
- Clear timeline: Clear goals and deadlines are critical to keep the process on-track.
M&A: Key Strategies For Growth
Mergers, acquisition, and business alliances are key strategies for the growth of eCommerce businesses. But to ensure that it creates required synergies, it’s imperative to know the key strategies beforehand:
- Horizontal M&A: Happens between two companies in a similar business with the goal of increasing their market share.
- Vertical: A merger of companies that provide different supply chain functions for a common good or service. For example, eBay acquired PayPal to help their online customers simplify their transactions on the online marketplace.
- Conglomerate: When two unrelated firms merge. This M&A is valuable only when the two companies are combined and has more value than one separate company.
How To Evaluate M&A Strategy in the eCommerce Sector
The eCommerce buyer must consider four aspects when evaluating an M&A opportunity:
- Economic value of the target: The value of a target company and its properties, both actual and perceived.
- Value of the assets: More subjective than financial worth, because buyers’ valuations of assets vary significantly.
- Resale value of the target: What a buyer expects to get when they resell their new asset.
- Strategic impact: This factor is the most difficult to assess, since it includes many aspects, including market share, production, distribution, technology, and human resources.
What Makes an eCommerce Company a Target For Acquisition?
According to research, private companies become acquisition targets when they’re big, growing quickly, and highly profitable, and when they have high leverage and low liquidity. Public companies become targets while they’re small, and have low profitability, leverage, liquidity and valuation.
Conclusion
The rapid growth of Indian e-commerce is attracting many international buyers. eCommerce businesses often merge to increase efficiencies, lower costs, achieve a competitive edge, and increase market share. If done well, a merger or acquisition can create synergistic benefits for all parties.
Litera Transact is a world-class software to securely and efficiently manage transactions. With Litera Transact, companies can increase profitability, mitigate risk, and simplify workflows for all kinds of M&A deals.
To know more about Litera Transact, Contact (website contact us form link) and Team Prime Infotech Solution Expert @ +91 9833650378.
Website : www.primeinfotech.biz
Mobile : +91 9833650378
