The deed is finally done.
After months of breathless whispers, carefully-leaked PR plants and incessant speculation, Walmart has formally announced that it is buying a majority stake in Flipkart in a $20 billion deal, ponying up $16 billion to acquire 77% of the company through a mixture of primary and secondary investments.
The first question that people seem to be asking is whether this is a good outcome for Flipkart.
Without a doubt.
It is not just a good but a glorious outcome for Flipkart.
Barely two years back, Flipkart was witnessing wholescale executive leadership changes, steep valuation markdowns by investors and experts penning obituaries saying that the company “had no clue which way to go”, that “a down round is inevitable and an IPO is impossible”, and that it was just a matter of time before Amazon bested Flipkart permanently.
Fast forward to today. Not only has Flipkart successfully managed to hold pole position in India, its leadership has guided the company to the biggest payoff ever for an e-commerce globally. $16 billion in cash.
Given the ease with which billion-dollar figures have been bandied about in the press over the past few years, it might be difficult for most of us to appreciate how big a number $16 billion really is. In rupee terms, it is more than one lakh crore – not 1,000 crore or 10,000 crore but 100,000 crore! It is, by far, the biggest outcome for an Indian startup and the largest e-commerce exit ever globally. Equally importantly, every single stakeholder of Flipkart, from investors to founders to employees, made life-changing money from the deal. Even the investors who poured in billions of dollars just last year made a smart exit.
But isn’t Flipkart’s story still work-in-progress? Wouldn’t an IPO have been a more meaningful exit?
Not really. Even in the best case scenario, a purported IPO would have been three-four years down the line. And given the nature of the beast, it is quite likely that Flipkart would then have struggled to get this valuation. Besides, it’s unlikely that all its stakeholders would have exited so handsomely. IPOs rarely allow more than 20-30% of investors to exit completely unlike this private sale to Walmart where more than 2/3rd of the existing shares were sold. Also, given that Walmart is a public company—by virtue of being a majority-owned company of a public company—Flipkart is effectively a public company itself. Walmart has already informed its shareholders that Flipkart’s financials will be reported as part of its international business segment.
While this is great for Flipkart, the burning unanswered questions, of course, are about Walmart.