Race for Jabong acquisition heats up

Alibaba, the Future Group, Flipkart’s Myntra and Aditya Birla’s e-commerce venture Abof- are all hot on heels to acquire Jabong and have been in negotiations to acquire the online fashion portal, according to sources.
It is also reported that even Snapdeal is in the race though not an aggressive bidder. The asking price is said to be $250-300 million but the deal size could be lower.

Jabong’s communications agency said that the company didn’t want to comment on the rumours and the executives also dismissed speculations concerning the sale.

An executive said, “Jabong has held talks with these four companies over the past few weeks. While none of the negotiations has reached an advanced stage, the deal size could be around two times its annual sales and is expected to close within the next six months.”

Rocket Internet and Kinnevik, who founded Jabong in 2012, have reportedly its executives camping in India to oversee the sale.

Swedish investment firm Kinnevik owns a large stake in Jabong’s parent Global Fashion Group. Both are said to be keen to exit.

Jabong’s revenues dropped 7% to Rs 869.1 crore in 2015 from the year earlier but it has trimmed losses to Rs 46.7 crore from Rs 159.5 crore after a clampdown on discounts, much as other ecommerce companies have done.

Jabong’s position has improved significantly in the past two quarters bringing in more suitors as compared its valuation of around $100 million and hardly any suitors six months ago, although it’s still far from $1-billion valuation sought nearly two years ago in negotiations with Amazon.

Jabong has been able to hire top-level managers — former Benetton India managing director Sanjeev Mohanty came on board in November 2015 as chief executive and former eBay executive Muralikrishnan B joined as chief operating officer in February.

Jabong’s net sales grew 14% to 32.6 million in the March quarter with a gross profit of 0.2 million as it derisked business by moving more toward the consignment and marketplace model and away from discounting.

As a result, EBITDA (earnings before interest, taxes, depreciation & amortisation) margin improved to a negative 36.5% from a negative 57%, representing absolute loss reduction of about 4.5 million year-over-year.

These could make Jabong a relatively more attractive asset for overseas players looking to enter India, according to experts, especially now that 100% foreign direct investment is allowed in online marketplaces.

The company that mostly competes with Myntra, Shoppers Stop and Lifestyle achieved breakeven last quarter, a rare instance of an online retailer turning even briefly profitable in the Indian market.