Excl: Amazon inching closer to Jabong acquisition; deal could be worth $1.2B

E-commerce giant Amazon.com, Inc. has completed its first level of talks to acquire Rocket Internet-backed lifestyle e-tailer Jabong.com in a deal worth $1.1-1.2 billion, in the biggest acquisition in the history of the Indian e-commerce space, two sources privy to the development told Techcircle.in.

According to a source, the meeting took place very recently and it has not even been a week.

It is not immediately clear how the deal would be structured as Jabong is an inventory-based e-tailer, where foreign investment is not allowed at present. But others point out that if Flipkart can buy Myntra, Amazon can seal this deal too with some careful structuring, especially if Rocket Internet, Kinnevik and others can pour in money into Jabong.

However, the deal would attract intense regulatory scrutiny given the heft of Amazon.

"The way the market is placed, fashion is the biggest category. However, it would not be possible for a general merchandiser to crack this industry without targeting inorganic growth," one of the sources privy to the discussion told on the condition of anonymity.

Another source cited above said that Amazon would keep Jabong as a separate property post the acquisition.

"It (deal) would be very much on the lines of Amazon's acquisition of Zappos in the US," he said.

When contacted, Jabong's co-founder Praveen Sinha declined to comment. An email query sent to Amazon's India team, elicited no response till the time of posting this article.

Besides Rocket Internet, Jabong also counts Swedish investment firm Kinnevik and UK's development financial institution CDC as a shareholder. Kinnevik owns 25 per cent stake in Jabong.

VCCircle had first hinted at a possible Amazon-Jabong deal way back in May, days before Flipkart announced a deal to acquire Myntra. Flipkart-Myntra deal, which was pegged at around $340 million, remains to date the biggest M&A in the e-com sector in the country.

The rumours of the talks between Amazon and Jabong have been floating around for the last couple of months.

The structuring of the transaction would also be interesting as the fashion portal is being merged into a global network of Rocket Internet-backed sites such as Dafiti, Lamoda, Namshi and Zalora under a firm called Big Foot Retail.

Big Foot Retail itself is said to be worth around $2.5 billion as of September 30, 2014, as per disclosure made by Kinnevik recently based on its 34 per cent effective ownership of the global platform.

Jabong, which is one of the two top lifestyle e-tailers in the country along with Flipkart owned Myntra, reported gross merchandise value (GMV) of Rs 509.5 crore from 3.197 million orders in the January-June 2014 period. This marked a three-fold rise over the previous year.

If it maintains the same growth through the rest of the year it may end with GMV of around Rs 1,300-1,500 crore for the year ending March 31, 2015.

Accepted fair valuation in speciality e-com in unlisted space internationally is pegged at 3.5x sales which would value Jabong at around Rs 5,000 crore. Jabong could be looking to drive a hard bargain given the strategic play of Amazon in India and significance of the deal to win in the high stakes game in the country.

(Edited by Joby Puthuparampil Johnson)