Axis Bank, India’s third largest private sector bank, is set to acquire digital payments company FreeCharge from its parent Snapdeal for $60 million, making it the first acquisition of a digital payments company by an Indian bank. The transaction is expected to conclude by the end of September.
The deal will give Snapdeal, a cash-strapped online marketplace, the much required runway for day-to-day operations, until it finalises a separate deal to get acquired by rival Flipkart.
The Flipkart deal has been in the works for four-five months, and is currently in the final stages of receiving approval from minority shareholders.
With today’s deal, Snapdeal will get back just a fraction of the $400 million it forked out in April 2015 to acquire FreeCharge, which was then counted as one of the largest start-ups deals.
The e-tailer, which has had scant success in raising funds over the past 12-18 months, went ahead with the Axis Bank offer despite receiving a higher albeit late bid of $70-80 million from Amazon, surprising many. Market leader Paytm had also made an offer of $10 million to acquire FreeCharge.
While analysts point out that the Paytm bid was largely made to acquire a strong tech team and oust competition, sources involved in the deal told BusinessLine the Paytm offer was way below shareholder expectations.
“We decided to go ahead with the Axis Bank offer despite receiving a higher bid from Amazon, as we were already in advanced stages of talks with Axis Bank.
“The consensus was to go ahead with it rather than start the whole process of due diligence with a new offer that could take a few months to conclude,” said a source.
Snapdeal had come close to raising fresh funds from existing and new investors many a time in the last few months, but the deal never came through. Last December, it was in advancedtalks with global payments platform PayPal for $200 million in exchange for a significant minority stake, which again fizzled out.
“Masa (Masayoshi Son, head of SoftBank Group Corp, the biggest investor in Snapdeal) wanted to pump $1 billion into Snapdeal at a $2-billion valuation in January, but it didn’t come through because the early investors refused to accept the low valuation and were hung up on the $6.5-billion valuation it hit in February 2016, when it raised $200 million from Ontario Teacher’s Pension Plan and others.
“By then Snapdeal had stopped investing in FreeCharge, resulting in the loss of a large chunk of customers, sounding its death knell,” revealed a senior executive from FreeCharge.
FreeCharge, a recharge platform when Snapdeal acquired it, received over ₹500 crore in investments that helped it develop a strong payments technology platform. When it was decided to put FreeCharge on the block, an additional $20 million investment was announced in March to dress up the company to make it more saleable.
Analysts and FreeCharge insiders are of the opinion that FreeCharge is fairly valued by Axis Bank, as it is being acquired for its strong payments technology engine and not for the business it is expected to generate.
Large user base
Amazon and Paytm’s loss is Axis Bank’s gain, as it now gets on board over 50 million FreeCharge registered wallet users and over 2,00,000 merchants.
“The future of consumer banking lies in the hands of the mobile-first generation. With FreeCharge, Axis Bank has acquired a massive mobile-first customer base and a strong tech platform which will provide the biggest differentiator, allowing the bank to surge ahead of competition with superior consumer-friendly offerings,” said N Suresh Pai, former Executive VP of IndusInd Bank.