The real deal may be in understanding where and how acquisitions and mergers go in the digital economy.
Foodpanda claims it has over 15,000 restaurants listed on its platform across 100 cities in India. Simply put, Ola can serve food to those taking cabs and bring a cab to someone looking to eat out. It is pertinent to remember that food technology platform Zomato acquired delivery firm Runnr
just a few months ago.
That is what they call synergy, defined as "the interaction or cooperation of two or more organisations, substances, or other agents to produce a combined effect greater than the sum of their separate effects".
Think of it like Virat Kohli slamming a century and Ashwin Ravichandran taking five wickets to defeat a rival team.
The interesting thing about the digital economy is that unlike old smokestack economics – in which companies often made acquisitions to build scale to control prices, size to build brands and reach to enter new geographical areas – there may be other things driving buyouts and sellouts. I would call them the "3D advantage", involving data, delivery, and digitalism. If at least one of the three Ds works, the deal should be worth it. However, there are minefields in implementation.
The digital economy offers tremendous scope for sharing data that gives a heads-up on demand or consumer psychology to cross-sell or up-sell goods or services. When you order a pram on Amazon, it shows you nappies you can buy, noting the high chances that you have just had a baby. The Ola-Foodpanda deal hits a big slice of urban travel, where you are looking to go out or eat out, with a high probability of synergy between the two.
You can, of course, buy to build market-share and maintain leadership as a one-stop e-marketplace. That's what Flipkart tried to do in its failed bid to acquire Snapdeal to take on Amazon. Scale and brand can still be important as people may prefer to surf fewer websites or apps.
The digital economy offers scope for consolidation in delivery as well. Service consolidation to drive sales has happened in traditional industries like banking and insurance (giving us the term bancassurance
) where you buy an insurance policy in a bank. But, given the regulatory issues, this often typically involves partnerships rather than total buyouts.
The cool thing about digital life is that data-driven insights and probabilities can make selling very easy in package deals. That is why Ibibo acquired bus-travel aggregator Redbus. You can book a flight, reserve a hotel, order a cab and even buy a bus ticket from a site like Cleartrip or MakeMyTrip, the latter of which has since acquired Ibibo
to build scale in the competitive game of one-stop-shop travel.
In the digital economy, delivery can acquire new shapes. Companies like GoJavas and Delhivery are trying to acquire size and reach in independent logistics to help e-commerce. This can create its own problems. GoJavas is fighting an ugly case
with former customer Snapdeal. Clearly, 800-pound gorilla embraces can go horribly wrong.
They say "data is the new oil" and sharing data in the new economy would be much like sharing factory space or distribution networks to build products you can package together in the old economy. Think of a factory that makes shampoo, toothpaste, and soap – a basket of cosmetics. Since independent logistics companies can handle the delivery, demand generation is where data-based synergies are worth the buyout price. Food ordering start-up Swiggy, Zomato’s rival, has faced negative gossip
on shortchanging partners and perhaps a full scale-buyout helps because "data under one roof" makes more sense.
Swiggy has just moved to strike a deal with Sodexo
, an old economy player that uses corporate service benefits to tie-up with restaurants. This is a case of synergy where Swiggy can simply on-board tens of thousands of corporate employees through its app. This is what one would call "digitalism" where digital lifestyles can be married to old habits to drive buyouts or partnerships.
When PayTm acquired Nearbuy
recently, it was a marriage between a payments platform and a local restaurant aggregator. You get the picture. Easy money marries easy spending.
Digitalism may well also make special sense in the case of digital natives. Young, affluent smartphone-toting singles looking for fashionable clothes and accessories can be targeted for impulse purchases – and more importantly, with cool technologies that help things like "social shopping" (as in pinging your BFF to show a dress you are trying to buy online). That is one of the reasons Flipkart acquired Myntra
for. Further, Myntra acquiring Jabong
for a bargain basement price in M&A was a classic case of expanding its reach in a high-growth area.
Data, delivery, and digitalism will likely trigger more partnerships, buyouts and joint ventures in the new year as the digital economy takes off in India and tens of millions of mobile phone users turn smartphone ninjas. However, M&A lawyers and deal-makers need to avoid pitfalls of the kind GoJavas and Swiggy have faced.
The author is a senior journalist and editor who has worked for Reuters, Business Standard, and Hindustan Times. He is currently an independent media entrepreneur, consultant, and columnist. He is listed among the top 200 Indian influencers on Twitter. He tweets as @madversity
Disclaimer: Views expressed are personal. They do not reflect the view/s of Business Standard.