After consolidation in the online market space, it seems the turn of mobile wallets. FreeCharge plans to merge itself in an all-stock deal with MobiKwik, said sources close to the companies.
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MobiKwik is in advanced discussion to raise between $100 – 150 million from domestic private- and public-sector banks. The fund raising from Indian financial institutions will set the benchmark valuation for MobiKwik, and will be used for negotiating with FreeCharge. Interestingly Sequoia Capital is a major investor in both the mobile wallet entities.
Sources say after the merger; the new entity is likely to get a top-up of $200 million (nearly Rs 1,300 crore) from a Chinese investor who is eager to make an entry into India.
FreeCharge on the block
FreeCharge, part of online marketplace Snapdeal, has been on the block for some time. According to sources, Jason Kothari, recently appointed as chief executive officer (CEO) of FreeCharge, has been in talks with investors in the US and China to sell it.
Players in contention
Earlier, there was also talk of selling FreeCharge to Paytm. However, nothing much has happened on that. Besides, PayPal was initially interested in putting a sizable investment in FreeCharge but the deal could not go ahead.
Separately, Flipkart may also bid for FreeCharge with an estimated sale price between $40 million and $75 million. However, SoftBank’s proposed investment in Flipkart will not be contingent on the Bengaluru company buying out FreeCharge.
Highs and lows
Snapdeal had bought in FreeCharge in a cash-and-stock deal of about $400-450 million, making it the largest acquisition in India two years ago. Even till late last year, the asking valuation of FreeCharge varied between $700-900 million, but the promoters were unable to close a funding round, with multiple investors, such as PayPal, Foxconn and PayU professing interest, only to walk away later.
The proposed price of the sale is much lower than for what it was bought. Now, FreeCharge is getting into a range where it becomes more attractive, given its integrations, product, IP and active relationships with merchants.
Competition in the space
At present, the Vijay Shekhar Sharma-run Paytm is the biggest mobile wallet in the market, with over 200 million users and a host of services. FreeCharge, say sector experts, was the second biggest. Both MobiKwik and FreeCharge would be worth around $300 million each. A merged entity could be valued at anything between $700 million to $1 billion and would make them on of the largest in the market.
Taking the fight to Paytm, MobiKwik has silently worked on building merchant base. It has over 9 lakh merchants on its payment network since November 8 considering the fact, it had only 1 lakh in seven years.
Then there is PayU India, which has over 26.5 million users and operates over 10,500 PoS terminals, has seen its offline business grow 6 times on a monthly basis. Other wallet players include Oxigen Services, with over 30 million Oxigen wallet users, a retail reach of 200,000 merchants with retail user base of 150 million users and 10,000 Oxigen Micro ATMs.
Besides, earlier this month, e-commerce behemoth Amazon India, has received RBI’s green signal to begin operating its electronic payment platform called ‘Amazon Pay’. Moreover, Flipkart proposes to invest major part of money raised from latest deals, including with Microsoft, in its mobile wallet ‘PhonePe’ and fintech considering opportunities in online money transfer segment.
Mobile wallet companies want to dig in to the core of India’s economy through retail, and brick-and mortar stores. The acquisition of FreeCharge could open up windows of opportunity in vertical e-commerce and allied services that become attractive buys for firms in the country.