By Devangi Narang
India’s third largest private sector lender Axis Bank entered into an agreement on Thursday to acquire FreeCharge. The bank said in a communication to the Bombay Stock Exchange that it has entered into a share purchase agreement with Jasper Infotech Private Ltd, Snapdeal parent, to acquire 100 percent equity in FreeCharge for a consideration of INR 385 crore ($60 million). The deal is subject to regulatory approvals, including from the Reserve Bank of India, and is likely to conclude by the end of September. The transaction comes at a time when Snapdeal itself is on the last leg of negotiations to merge with arch rival Flipkart.
What does the deal entail?
The conclusion of the deal marks the closure of a two-year long process during which Gurgaon-based Jasper Infotech had been trying to monetise its investment in FreeCharge. It was initially looking to raise between $150 million and $200 million at a valuation of $1 billion for the digital payments unit. It had acquired FreeCharge in a $400-million stock-and-cash deal in 2015.
As efforts to raise funds failed, FreeCharge was put up for sale. Since December 2016, various players had expressed interest in buying out the payments provider, including rival Paytm and online retail major Amazon, which made a late bid for the Bengaluru based FreeCharge last week. Additionally, Airtel and the major global payments player, PayPal, had also been in talks to acquire the company.
Fast-forwarding the growth of Axis bank
For Axis Bank, the acquisition will give it a good chance to have a strong play in the digital payments space, a key consumer focus area. Acquiring Freecharge’s business would give Axis Bank access to about 52 million mobile wallet holders, about 200 professionals in the firm’s strong tech team, brand value and patented technologies. FreeCharge has over 2,00,000 merchants on its platform and claims that more than 90% of its transactions originate from its app. This would double the customer base of the bank and leapfrog its digital journey by multiple years. Moreover, the bank will also be able to cross-sell multiple products post acquisition.
Axis Bank’s Managing Director and Chief Executive, Shikha Sharma, told reporters that the deal is important from a strategic point of view and is likely to lower the bank’s customer acquisition costs significantly. The Axis-FreeCharge deal allows Snapdeal to further focus on its core e-commerce business while providing Axis with agile and innovative technology capabilities in the financial services space in India, said Kunal Bahl, Snapdeal’s co-founder and Chief Executive, in a statement.
Big gains for Axis
Axis Bank has Axis Pay besides the UPI platform, and some analysts believe that the bank will be now able to integrate FreeCharge with UPI. Axis Bank is tech savvy and with the acquisition of FreeCharge, it will further the tech image of the bank. Moreover, FreeCharge would have tied up with other players for discounts and those relationships can pay dividends for Axis.
Axis will be the first one in the banking space to snap up a mobile transaction platform. This will increase pressure on other banks as they will now be forced to look at similar acquisitions, to be able to complete with Axis’ technology at the front-end. Overall, for Axis Bank, Freecharge could turn out to be a valuable addition, given most traditional banks have not been able to become prime players in the mobile wallets segment.
A wakeup call for startups?
Snapdeal had bought FreeCharge in 2015 for an estimated $ 400 million or over INR 2,500 crores at current rates. At that time, this was touted as the largest deal in the nascent startup ecosystem in India. The drop-in valuation is similar to that of Snapdeal which was valued at over $6 billion at the start of 2016 but has now accepted a buyout offer between $900 and $950 million from arch rival Flipkart.
On one hand, many believe that the sale of Freecharge will mark the most stunning collapse in India’s startup world. It has come as a good wake-up call for the startup ecosystem, founders, investors, and those planning to buy similar start-ups. On the other hand, some believe that this is the best deal considering the circumstances Snapdeal is in today. FreeCharge’s sale will come as a breather for Snapdeal as it requires capital at the moment.
On hindsight, it can be seen that such copycat products cannot survive and consolidation is the name of the game. Even Paytm had to turn into a bank to be successful. Nevertheless, it will be interesting to see how this deal will pan out for Axis Bank and how it would give a boost to its digitization efforts and keep up with the rapidly evolving fin-tech scene.
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