Valuation cloud over Snapdeal-Alibaba deal

China's Alibaba seems to be distancing itself from a possible investment in Snapdeal over differences in valuation for fresh funding. This might help Taiwan's Foxconn, also in discussion with the New Delhi-based company for infusing fresh funds.

A report by Recode first reported on Wednesday that Jack Ma-led Alibaba was shying away from investing in Snapdeal. Sources Business Standard spoke to echoed similar views. Talks between Alibaba and Snapdeal seem to have got stuck.

According to sources, Snapdeal is seeking a valuation of $6-7 billion for fresh funds worth at least $600 million. According to some reports, Alibaba was valuing Snapdeal in the range of $4-5 billion.
 

DEAL SNAPPED?
Talks between Alibaba and Snapdeal for a stake in the latter seem stuck

WHAT’S THE DISAGREEMENT?

• Indian e-commerce company Snapdeal is seeking a valuation of $6-7 billion for fresh funds worth at least $600 million
• Chinese e-commerce giant Alibaba values Snapdeal in the range of $4-5 billion

WHY?

• Online consumer companies in India have been seeking steep valuations given the potential from the huge growth in the number of internet and smartphone users
• Sector experts have warned of a valuation bubble in the local consumer internet business

"Alibaba would have been a key boost for Snapdeal and vice versa but the valuation sought by Snapdeal seems to be creating a hurdle for the deal. Foxconn, however, has shown interest for a pie in Snapdeal at a higher valuation but talks haven't been finalised yet," a source said.

A Snapdeal spokesperson refused to comment.

To topple rival Flipkart, Snapdeal is looking for fresh funds to scale up its business and has been on an acquisition spree. Co-founder Rohit Bansal told this newspaper recently Snapdeal would close half a dozen acquisitions this year. The company could spend as much as $1 billion on these.

The company raised around $1 billion last year, while Flipkart raised around $2 billion. A major investment of $627 million in Snapdeal came from Japan's SoftBank. Online consumer companies in India have been growing fast over the past few years as the number of internet and smartphone users rises.

Thus, most online retailers are seeking steep valuations. Several experts have even hinted at a valuation bubble in the local consumer internet business.

While e-tailers in the country do not disclose their revenues, the gross merchandise value (GMV) for Snapdeal is second highest after Bengaluru-based Flipkart's at $3 billion. It is looking to leave Flipkart behind by the end of this year by raising it to $10 billion. Flipkart, with a GMV of around $4 billion, has set a target of double the value in 2015.

Flipkart and Snapdeal have been in talks with old and new investors for funding this rapid growth.