Snapdeal may not acquire rival ShopClues; litigation, tax risks likely reasons behind decision

The acquisition of ShopClues by larger rival Snapdeal is unlikely to materialise nearly a month after they had entered into talks for the buyout in an all-stock deal.Last month, Snapdeal was in talks to acquire ShopClues in a deal likely to be pegged around $200-$250 million.The companies have engaged in such discussions in the past as well, but this is the first time that it has made it to the due diligence phase, reported PTI.According to sources close to the development, there are concerns regarding some of the findings emerging from the due diligence conducted by the advisory firm, Ernst & Young.[caption id="attachment_4286413" align="alignleft" width="380"]

Representational image. Reuters[/caption]When contacted, a Snapdeal spokesperson declined to comment on the status of the discussions with ShopClues or the findings of the due diligence report, citing confidentiality protocols.ShopClues too declined to comment on the matter.One of the persons said the fall in the number of orders to about 25,000 a day, a high proportion of orders returned by the buyers and concerns around accumulated liabilities, potential litigation and unquantifiable tax risks seem to have made ShopClues an unattractive option for Snapdeal.With nearly 500 employees, ShopClues could be forced to downsize rapidly in the coming weeks, the person added.Another source said ShopClues is also exploring options with other platforms, even though these are in early stages.ShopClues, in an emailed response, said its focus is on innovation and efficiency that has led to "spectacular improvements in revenues and economics"."Our recently launched social selling platform EzoNow has 5 lakh resellers. We have expanded our rural offline stores to 20 in West Bengal and Odisha with two new ones recently opened in Eastern UP. Our smartship business has crossed 10,000 orders per day mark. Marketplace daily orders range between 65,000-70,000 a day," it said.The email added that ShopClues has added 60 people in the last two months.ShopClues (which is registered as Clues Network) posted losses of Rs 208 crore for the year ended March 2018. The company — which has raised about $250 million so far — focusses on tier II and III cities.Last month, Snapdeal had started the due-diligence process and is likely to take a call on the acquisition over the next few weeks, the sources close to the development said.ShopClues' investors, including Singapore’s sovereign wealth fund GIC, Helion Venture Partners, Tiger Global, Nexus Venture Partners and Unilazer Ventures, were to exit post the deal.Snapdeal, which walked away from a deal with Flipkart in 2017 to chart its own independent strategy for growth, has managed to bring down its consolidated loss substantially to Rs 613 crore for 2017-18 from Rs 4,647.1 crore in 2016-17.— With PTI inputs