Mahindra Group acquires VCs-backed baby products e-tailer Babyoye

Mahindra Group, which runs one of the country's largest offline stores chain for baby and infant products, has acquired Mumbai-based startup Nest Childcare Services Pvt Ltd, which runs e-commerce site for baby related products under Babyoye.com.

"And Babyoye is now a part of the Mahindra Group. Welcome Babyoye #1500 followers," tweeted Anand Mahindra, chairman and managing director, Mahindra Group.

Sanjay Nadkarni, founder of Babyoye tweeted: "We are delighted to be a part of the Mahindra family."

They did not share any financial details of the transaction.

The website of Babyoye now mentions that the domain name babyoye.com is registered in the name of Mahindra Internet Commerce Pvt. Ltd. It is not clear if this firm is part of the listed group flagship Mahindra & Mahindra or a privately held unit of the Mahindra family.

M&M is yet to make disclosures on the deal.

Email queries sent to Babyoye and Mahindra Group for further clarity on the transaction did not immediately elicit any response.

This is the first such M&A for an Indian business group in the e-com space, which has largely seen consolidation through mergers between common VC-backed ventures and shutdowns.

What it means for Babyoye and the peer group

Babyoye, founded in 2010 by husband-wife duo Sanjay Nadkarni and Arunima Singhdeo, has been looking to raise fresh money for years now. It last raised VC funding around two years ago from existing shareholders Tiger Global, Accel Partners and Helion Venture Partners. It had raised $12 million back then.

Around the same time it had acquired Hoopos.com, another e-commerce site operating in the same space, in an all-stock deal in 2013. This had brought Helion as a shareholder into the firm. The VC firm had joined the existing investors the ensuing round.

Prior to that Babyoye had raised money from Tiger Global and Accel in 2011 and had reportedly roped in former Bollywood actress Karishma Kapoor as an investor. It was not clear if she actually invested in the venture or got shares of the firm in lieu of becoming a brand ambassador.

While it was a close competitor of FirstCry, the latter sped away with multiple rounds of funding even as Babyoye struggled to get fresh funding and grappled with rumours that is shutting down.

In fact, FirstCry just raised $26 million afresh taking its total funding to around $60 million or four times that of Babyoye. While some competitors like Hushbabies shut down in the past, others like Hopscotch also managed to scoop fresh money recently.

Besides its immediate peers, Babyoye also competes with the top horizontal e-com marketplaces Flipkart, Amazon and Snapdeal, among others. As these horizontal e-tailers got aggressive with loads of cash, the market has got increasingly consolidated.

Tiger Global has been pumping in cash in Flipkart but did not back Babyoye with more funding. In such a scenario, the options were getting limited for Babyoye.

To that extent this deal is more like a lifeline to stay afloat. It also gives it an opportunity to compete head on with FirstCry, which has spread its own network of offline stores by giving its brand to franchisee partners.

BabyOye had revenues of Rs 29.8 crore for the year ended March 31, 2014 as compared to Rs 18 crore the previous year. Its net loss rose from Rs 10.5 crore to Rs 15.1 crore during the same period.

The deal means the arena is not yet a two-player field for FirstCry and Hopscotch. The backing of a strong cash-rich business group creates the strongest hybrid competitor for FirstCry yet, currently the market leader in its business.

What it means for Mahindras

Mahindra Group is a multi-billion conglomerate with presence in several sectors including automobile, IT services, retail, finance, hospitality, among others. In the retail world it owns a chain of baby-care stores under Mom & Me. It also runs a parallel online channel as an offshoot of the offline retail chain.

As per its website there are 110 outlets of Mom & Me across the country. Although it is arguably the largest player in its space, it has been facing a challenge from FirstCry. FirstCry had two months ago claimed it has crossed the 100 offline stores mark in partnership with its franchisees.

Given the fast scale-up, FirstCry may well overtake Mom & Me in terms of the store count. To that extent Mahindras needed some bold strategy to take the fight to the hybrid competitor.

To that extent it now gets a well established brand and a team well versed with nuances of selling baby products online.

What remains to be seen is whether it chooses to retain Babyoye brand and merges Mom & Me's online channel to Babyoye, which can create a dual branding one for online and one for offline stores. The other possibility is that it merges Babyoye with Mom & Me, which would end up like an acqui-hire.

(Edited by Joby Puthuparampil Johnson)