Online media platform Entrackr reported on 9 April that ShopClues was in talks for a potential acquisition by Snapdeal.
“Nexus (Venture Partners) is the common investor between the two companies and the one that initiated this deal," said one the persons mentioned above.
Other investors in ShopClues include Tiger Global, Unilazer Ventures, Helion Venture Partners, and Singapore’s GIC
Snapdeal did not comment on the potential deal.
“We have, in the past, and will continue to in the future, pursue partnerships and commercial relationships with ‘rivals’ if it helps us serve our consumers better," said a spokesperson for ShopClues. The company claims to have cut losses from ₹210 crore in FY18 to ₹45 crore in FY19, while keeping a flat growth in revenue.
A deal will help ShopClues, which has been battling to raise funds for a long time. It will also mark Snapdeal’s first purchase after it re-focused its business to unbranded categories with Snapdeal 2.0, following the failure of talks in 2017 to sell off to Flipkart. Previously, Snapdeal had acquired fintech company Freecharge, which it later sold to Axis Bank.
A transaction, which may take a few months to fructify, would allow investors of ShopClues to pick up a 10% stake in the combined entity, while the founders of ShopClues will exit the company, said another of the persons mentioned above.
“Snapdeal only has equity and no preference shares, unlike ShopClues, where the structure is different. So, the investors will get a stake based on what their rights are, but that’s something the ShopClues board has to figure out," said one of the persons familiar with the matter.
However, several former employees of the two companies, as well as investors and analysts, wondered if a deal would make economic sense for the founders and employees of Snapdeal.
“The only advantage I see for Snapdeal is that they can now have Tiger Global, which has become active in the Indian market, as its investor," said an investor familiar with the two companies, requesting anonymity.
Until one-and-a-half years ago, ShopClues had close to 1,100 employees. However, the company began to slide because of financial problems, according to several former employees.
“ShopClues had a good opportunity to tap into small towns and cities with unbranded products. However, the company couldn’t capitalize on it. The money crunch led to a drop in marketing expenses, salaries did not go up for two years. Things started spiralling down," said one of the former employees mentioned above. ShopClues and Snapdeal have about 700-750 employees each. Industry experts believe Snapdeal does not have the need to absorb workers equal to its current workforce if the deal with ShopClues goes through.