Digital Wallet Startups

Paytm to acquire Snapdeal owned Freecharge

Alibaba Group-backed Paytm has signed a non-exclusive term sheet to acquire rival FreeCharge, the digital payments platform owned and operated by beleaguered online marketplace Snapdeal, in what is expected to be an all-cash deal.

Paytm will begin financial and commercial due diligence of FreeCharge next week, according to four people aware of the developments. If successful, the deal, estimated at between $45 million and $90 million, could be finalised in a month, said one of the sources.

Vijay Shekhar Sharma-led Paytm is in advanced stages of discussions to raise up to $1.9 billion in fresh funding from Japan’s SoftBank that could value it between $8 billion and $9 billion.

For Snapdeal, selling its payments arm will provide much-needed relief to the troubled online marketplace. Snapdeal’s largest stakeholder, SoftBank, is currently negotia ting the sale of the company to rival firm Flipkart. The proposed stock transaction, now pegged at $750 million compared to $1billion earlier, has been progressing but the two par ties have not signed a term sheet yet, said one source familiar with the matter. “The (FreeCharge) deal could be closer to $45 million,”said two of the people cited above.

However, the non-exclusivity of the term sheet, which was believed to have been signed earlier this week, will allow Snapdeal to hawk the digital payments platform to other potential buyers.

According to the sources cited earlier, the company has, once again, initiated contact with global payments giant PayPal, which had earlier come close to picking up a majority stake in FreeCarge but had walked away due to valuation differences.

Apart from PayPal, two domestic banks and a couple of private equity firms have also expressed interest in the Bengaluru-based company.

It is also not clear if Flipkart and digital payments provider MobiKwik, which were also in the running to acquire FreeCharge, are still in the hunt. Paytm and Snapdeal did not reply to email queries.

Apart from Paytm, FreeCharge, which was acquired by Snapdeal for $400-450 million in April 2015, in what was then the largest acquisition in the In dian startup ecosys tem, competes with the likes of Naspers-owned PayU India and MobiKwik, amongst others. However, with the reversal in fortunes of Snapdeal, the digital payments venture has seen the volume and value of transactions on its platform also fall sharply . The company is estimated to have recorded `300 crore in transaction revenue, and about 12 million in volume in April.

The payments company had earlier forecast seven million daily transactions and gross merchandise transactions of Rs 20,000 crore by the end of fiscal 2017.

As compared to FreeCharge, Paytm had said last month that till April 26 it had done 255 million transactions, running close to 10 million transactions a day. The Noida-based company said that it closed fiscal 2017 with three-fold growth in total transactions to 1.5 billion. The company has about 218 million wallet users, and is more than double the size of closest competitors like MobiKwik. Even if sold at the upper end of the range, it will be a steep fall in valuation for the company , which had seen layoffs of about 100 employees across the board, and for which its founders, till late last year, had demanded a valuation of close to $1 billion.

Jasper InfoTech, the parent company of Snapdeal, has been pumping in money into FreeCharge, having put in about `420 crore according to documents filed with the registrar of companies.

Separately , Snapdeal is also in talks with multiple parties to outright sell, or divest a majority stake, in its in-house logistics arm, Vulcan Express.

 

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