Jabong Is Up For Sale – 3 Reasons Why Alibaba, Myntra, Abof & Future Group Are Bidding Hard For it
4-year old Jabong has suddenly become a hot ecommerce property, and some of the largest digital startups and business conglomerates are bidding hard to acquire it right away. Speculations are rife that Jabong is up for sale between $250 million and $300 million; and executives from Rocket Internet, which own Jabong, are right now conducting back-to-back meetings with prospective buyers.
As per reports coming in, four prospective buyers with whom Jabong is currently negotiating are: Alibaba, Myntra, Aditya Birla Group led Abof and Kishore Biyani led Future Group.
Way back in 2014, we had speculated that Amazon may acquire Jabong, as they were attempting to establish a dedicated presence for selling cloths. However, with a price tag of $1 billion, Jabong was too costly that time, and Amazon refused the bait.
Around two months back, Jabong had dropped their valuation to around $100 million, and it was still struggling to find buyers. But suddenly, few things have changed dramatically, which has positioned Jabong as an attractive investment, and their perceived valuation has thus tripled.
It was rumored that Snapdeal is also in the fray to acquire Jabong, but it was later dismissed, leaving just 4 primary bidders.
ET quoted a person familiar with the development: “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.”
Although none of them have either confirmed nor denied these reports, it is expected that Jabong would be sold within next 6 months.
3 Reasons Why Jabong Is An Exciting Investment Right Now
Jabong is actually making profits!
During the period January-March, 2016, Jabong’s net sales increased by 14% to $36.2 million, which enabled them to post a profit of $0.2 million. This is certainly tiny, but compared to $77 million loss absorbed by India’s top 3 ecommerce portal: Amazon, Flipkart and Snapdeal, this tiny profit is a silver lining within a dark cloud.
With EBITDA (earnings before interest, taxes, depreciation & amortization) improving to -36.5% from -57% year on year, Jabong has been able to miraculously decrease their loss by $4.5 million annually.
Last year, Jabong had surprised everyone by posting revenues of $16 million, which was double of what they churned out in 2014.
This turnaround has happened mainly due to 2 reasons: they have refused to give discounts since last 1-1.5 year and they are moving rapidly towards online marketplace model; which brings us to the 2nd point.
FDI Is Allowed For Online Marketplaces
Govt of India has allowed FDI or Foreign Direct Investment in online marketplaces, which is can be one of the reasons why Alibaba and Myntra are especially interested to acquire Jabong. Myntra is a direct competitor of Jabong, and they cater to almost same audience; hence it would be a perfect fit for them.
For Alibaba, it can be a good investment considering the fact that Jabong is now a reputed brand in India, and clothes shopping online is one of the fastest growing categories. And this introduces the 3rd possibility of Jabong’s acquisition.
Strong Brand Value; Perfect Amalgamation Into Offline Retail
Jabong has been able to attract and retain the right people, at the right time. Inclusion of Benetton India managing director Sanjeev Mohanty in 2015 as CEO and ex-eBay executive Muralikrishnan B joined as COO had been excellent decision.
With their creative marketing and establishing a brand value, Jabong is the perfect acquisition for those offline conglomerates who are attempting to scoop out a market share from ecommerce.
This is the reason Kishore Biyani led Future Group and Aditya Birla led Abof are attempting to acquire Jabong, and establish themselves online.
Out of these two, Future Group has already worked with Rocket Internet, when they acquired FabFurnish for Rs 15 crore; hence talks with them is more intense as of now.
We will keep you updated as more details come in.
A small trivia: Jabong was founded by Arun Chandra Mohan, Praveen Sinha, Manu Jain, and Mukul Bafana; and all of these co-founders have sold their stake to Rocket Internet. Besides owning Jabong, Rocket Internet also has holdings in FoodPanda among other companies. Here is an interesting story on the business model used by Rocket Internet all over the world.