Finally, Rocket Internet has managed to sell Jabong, its fashion e-commerce site in India, after more than a year of speculation. Myntra, the fashion portal which itself was acquired by Flipkart, has stepped up and bought its rival in a $70 million deal announced today.
The deal is all in cash but it is not completed yet, it is expected to close within Q3 2016.
Flipkart CEO Binny Bansal and executive chairman Sachin Bansal both confirmed the deal on Twitter, with Sachin keen to “make history” with Jabong.
Global Fashion Group (GFG), the umbrella company that runs Rocket Internet’s fashion-focused e-commerce businesses worldwide, explained in an announcement that it spent months deliberating on which suitor to sell the Jabong business to:
Following a strategic review of its Indian operation, the GFG Board concluded that Jabong’s position as India’s leading fashion e-commerce destination would be best served through a business combination with a local player. Having reviewed multiple options over a period of several months, the GFG Board has resolved to sell Jabong to Flipkart Group.
India’s Economic Times reported that Myntra/Flipkart beat out a range of competitors, including Snapdeal and Future Group, but plenty of others have been linked with a deal in the past.
Jabong was once thought to own one-quarter of India’s fashion e-commerce market, making it the chief threat to Myntra. Back in 2014, Amazon was reportedly nearing a $1.2 billion deal to buy the company before backing out months later. Alibaba, Flipkart, Paytm and countless others have been linked with deals since then as Jabong failed to maintain its position in the market.
The (inevitable) sell-off comes amid challenging times for its parent company.
GFG raised $365 million at a drastically reduced valuation of $1.1 billion last week. We reported at the time that the group had met with as many as 90 investors and yet failed to land capital outside of its existing investor base. GFG sold off two business units belonging to Zalora, Jabong’s sister company in Southeast Asia, earlier this year, and we wrote that the sale of Jabong and other unwanted businesses is likely to happen now that this new financing is secured.
Jabong’s finances haven’t been too impressive of late. The company carded a €60 million ($66 million) loss for 2015 with €211 million ($232 million) in GMV for the year. During its most recent quarter of business, Jabong’s losses narrowed to €11.9 million ($13.1 million) from €16.3 million ($17.9 million) one year before, but its margins nearly halved from 59 percent to 36.5 percent over the same period. That shift, which GFG put down to fewer discounts, was presumably to get the business into shape for a sale.
Our source suggested that there could be other business units within GFG sold off, although that might be country-based operations like Zalora’s previous deal and not entire companies like Jabong.
“Through the sale of Jabong, we are achieving a milestone in our strategy to refocus and invest in our core markets that show both, significant growth and revenue potential but also a clear and predictable path to profitability,” GFG CEO Romain Voog said in a statement.