Snapdeal is preparing the framework for a complete acquisition of GoJavas, the online marketplace’s primary delivery partner in which it holds a significant minority stake, according to two people familiar with the early discussions.

It is yet unclear how much Snapdeal is willing to pay for GoJavas. The company was valued at Rs 600 crore when Snapdeal acquired a 42 per cent stake in it in two tranches last year for about Rs 250 crore. The acquisition would aid Snapdeal to try and claw back the market share it has lost to Amazon India over the past six months, by strengthening its supply chain infrastructure and ensuring faster deliveries to consumers.

Snapdeal, according to the sources, is likely to execute the acquisition through Vulcan Express, its end-to-end logistics unit that primarily deals with its bulk orders and manages the online marketplace’s delivery centres and its almost three-lakh sellers.

An eventual consolidation of GoJavas and Vulcan is certain,” the first person familiar with the developments said. On July 11, Vijay Ghadge, the former Chief Operating Officer of GoJavas, joined Vulcan Express as its COO. Multiple sources told that Go-Javas has been struggling to raise a fresh round of capital, and an acquisition by Snapdeal will be a win-win for both entities.

“Snapdeal is dependent on GoJavas as its efficiencies had improved after working with them. Vulcan absorbing GoJavas is a close possibility as the marketplace had invested in the team that built Go-Javas, with Ghadge joining the latter,” the second source said. Such consolidation will bring its own set of challenges given the hurdles online marketplaces are facing in raising capital at desired valuations.

“Ecommerce marketplaces are currently focused on improving their unit metrics and hence might be careful in considering investment in logistics companies,” said Manish Saigal, Managing Director at turnaround specialist Alvarez and Marsal in India.

As on February, GoJavas delivered to about 3,200 pin codes, or 300 towns and cities, and has targeted to be operational in 4,000-4,500 pin codes, or 600-800 towns and cities, in the following 12-18 months. The company, which was built as a logistics arm of Rocket Internet-backed online fashion retailer Jabong, was spun off as a third-party logistics firm in 2013.

While it continues to serve as a delivery partner for Jabong, the company counts Snapdeal as its biggest partner. Sources said GoJavas’ partnership with Jabong is not expected to continue beyond the current month. “Snapdeal and Jabong combined make up 85 per cent of GoJavas’s orders.

As rates were marked up by GoJavas, Jabong has put them on a notice till July 30, following which GoJavas will be servicing only Snapdeal and a few other players like Zivame, one of these sources said.

Source: The Economic Times