New Delhi: The suddenness and the surprise were characteristic of Lee Fixel, the venture capitalist to whom many in the Indian start-up ecosystem assign extraordinary, almost super-human abilities.

On Monday night, executives at Snapdeal in charge of managing the marketplace’s proposed acquisition of troubled online fashion retailer Jabong, went to bed thinking they had the deal. They woke up a few hours later to the news that Global Fashion Group (GFG), Jabong’s holding company, had agreed to sell the fashion retailer to Flipkart, Snapdeal’s arch rival.

Flipkart, which also owns Myntra, the country’s largest specialty online fashion retailer, got a cut-price deal, paying just $70 million for Jabong, which was worth as much as €388 million (about $508 million) in December 2013. Kinnevik and Rocket Internet, the promoters of Jabong, took a massive haircut, but were probably happy to see the close of a sale that has been in the making for over a year and which, at one point, looked like going nowhere.

View Full Image Ananth Narayanan, chief executive of Myntra who will now run Jabong.

People familiar with the matter said Fixel of Tiger Global Management, Flipkart’s largest investor, pushed the e-commerce marketplace’s executives to go for Jabong. In turn, the Flipkart executives, the people added, were dealing directly with executives at GFG. Senior executives at Jabong fronting the talks with Snapdeal were not even aware of the conversation.

For Flipkart, the acquisition of Jabong will extend its dominance in the fashion space and is seen as a move by the company to preserve its position as India’s No.1 e-commerce marketplace in the face of an onslaught by Amazon India.

“The price was very attractive and Lee was in favour of picking up Jabong. With Jabong, Flipkart will be out of reach of Amazon for good in at least one category. Lee really pushed for the deal," said one of the people cited above, asking not to be identified.

Fashion, which offers higher margins to online retailers compared with mobile phones and books, is expected to overtake consumer electronics as the largest category at 35% of total online spending by 2020, according to a June report by Google and consulting firm A.T. Kearney. Online retail is expected to surge to $60 billion by then.

ALSO READ: Jabong may be Flipkart’s best investment yet

The combination of Flipkart-Myntra is by far the largest online retailer of fashion, far ahead of Amazon India and Snapdeal. The Jabong acquisition will widen that gap.

Amazon India has been spending tens of millions of dollars on advertising and adding products in fashion, but it still hasn’t been able to catch up with Flipkart in the category, say analysts. Snapdeal is seen to be the weakest of the lot in fashion and losing out on Jabong to Flipkart will come as a blow to the SoftBank and Alibaba-backed marketplace.

Additionally, the acquisition of Jabong, which will be retained as a separate brand, will boost sales at Flipkart, which is struggling to revive sales growth and has been losing market share to Amazon.

“Jabong has built a strong brand that is synonymous with fashion, a loyal customer base and a unique selection with exclusive global brands. The acquisition of Jabong is a natural step in our journey to be India’s largest fashion platform. We see significant synergies between the two companies, especially on brand relationships and consumer experience," said Ananth Narayanan, chief executive officer, Myntra, who will now also run Jabong.

The acquisition of Jabong is a natural step in our journey to be India’s largest fashion platform. We see significant synergies between the two companies, especially on brand relationships and consumer experience- Ananth Narayanan, chief executive officer of Myntra who will now run Jabong.

“It looks like Flipkart has realized the general merchandise category is very competitive with Amazon fighting it tooth and nail there and that they have a better chance of succeeding in fashion," said Harminder Sahni, managing director at consulting firm Wazir Advisors. “Currently, Myntra and Jabong have the same customer base. If Flipkart can create differentiation between itself, Myntra and Jabong, the market is large enough for all the three to co-exist. Jabong still has strong brand equity."

Amazon India, as has been its wont in recent times, continued to emphasize its efforts to serve customers better.

“Overall we’ve been growing very fast and fashion is one of our fastest-growing categories. And with Prime we expect more customers will buy (fashion products) from Amazon," said Amazon India country head Amit Agarwal.

His reference was to Monday’s launch of Amazon’s Prime membership programme in more than 100 cities, offering free one-day and two-day delivery on hundreds of thousands of products on its platform.

Overall we’ve been growing very fast and fashion is one of our fastest-growing categories. And with Prime we expect more customers will buy (fashion products) from Amazon.- Amit Agarwal, country head for Amazon India.

Both Flipkart and Snapdeal were aware that if Amazon India had a weakness, it was in the fashion segment.

While Snapdeal (owned by Jasper Infotech Pvt. Ltd) was nervously weighing the consequences of acquiring Jabong with the company’s existing business structure, pointing to regulatory issues and seeking answers to alleged corporate governance issues reported in the media, Flipkart took the deal as is, according to four people close to the development. None of them wanted to be identified.

“Speed is very important in the last leg of the cycle, especially when there are multiple people in fray," said one of the four, who was directly involved in the deal.

“Snapdeal’s legal team sent a long list of conditions; they were negotiating hard. They were worried about an investigation (into alleged irregularities at Jabong)…, if it happened post the acquisition," this person added.

Snapdeal was also wavering between only the assets (just the technology and the brand name) of Jabong for cash or going ahead with a full share transaction. An asset purchase would have meant no liability on Snapdeal in case of a legal probe, if at all. However, it was a complex structure. This was making Jabong’s investors nervous.

View Full Image Kunal Bahl of Snapdeal. The e-commerce firm was wavering between only the assets (just the technology and the brand name) of Jabong, or going ahead with a full share transaction. Photo: Hemant Mishra/Mint

Flipkart, on the other hand, was swift. It was not afraid of buying Jabong’s shares for cash. “The deal was put together in the last 48-72 hours. Flipkart was always interested but the valuation that Jabong was seeking made it uncomfortable," said the second person.

During the last one month, Jabong’s asking price came down to $65-$75 million. This was partly due to the market conditions and partly due to the bad press Jabong received.

“If you ask me, did the allegations around corporate governance have an impact on the deal value? I am not sure. But yes, Jabong could have bagged a better valuation if it had managed the media better," said the third person, who was also directly involved with the deal.

Jabong was recently in the news after a pseudonymous Twitter account holder alleged that co-founder and former chief executive officer Praveen Sinha made personal gains from business dealings at the fashion website.

Sinha has denied the allegation and claimed he had been unfairly accused of wrongdoing.

ALSO READ | Twitter leak triggers row over Jabong deals, Praveen Sinha denies claims

GFG had been looking for a buyer for Jabong for more than a year now. GFG held discussions with several firms including Snapdeal, Future Group, Aditya Birla Group, Amazon and Flipkart.

A deal seemed close in April. Jabong’s valuation saw a major dip. According to several media reports, Jabong started with an asking price of $1 billion in early 2015 when Amazon showed interest in its business. The deal fell through. By September 2015, the company was seeking a valuation of $500-$800 million and was talking to eBay, Paytm and a few others.

The valuation gap was still too vast.

Jabong’s parent GFG led the discussions. In command was investment manager at AB Kinnevik, Akhil Chainwala, who was leading the discussions with Snapdeal.

Kinnevik chief executive Lorenzo Grabau, who was in India early July, met executives at Snapdeal, Abof, Future Group and Flipkart, Mint reported in July. Grabau was also directly in touch with Flipkart’s Binny Bansal and Mint learns that he played a part in events that transpired over the last 48 hours before the deal.

Jabong was advised by investment banker Avendus and legal firm Khaitan and Co advised Flipkart.

Mint reported last week that Jabong.com was shifting from an inventory-led model to a marketplace model as it aimed to comply with rules on foreign investment ahead of a potential sale.

Jabong started out as a platform owned by Jade, the business-to-business entity that received foreign direct investment and sold goods to Xerion Retail (the business-to-consumer entity), which in turn sold products to customers on Jabong’s site.

Jade had leased out the license to run Jabong.com to Xerion. In the new structure, Xerion as a company will cease to exist and the licence of the brand Jabong.com has been transferred to Novarris Fashion Trading Pvt. Ltd, a wholly owned subsidiary of Jade e-services Pvt. Ltd.

Jabong, which matched larger rival Myntra in sales until early 2014, has ceded market share since then, as Myntra’s parent Flipkart has been spending hundreds of crores of rupees on advertisements and discounts to attract customers.

At the end of May, Jabong reported a 14% increase in revenue to €32.6 million for the March quarter. The Gurgaon-based firm’s adjusted Ebitda (earnings before interest, taxes, depreciation and amortization) loss narrowed to €11.9 million from €16.3 million in the same quarter a year earlier.

In the past year, the company has witnessed an exodus in its senior management, a funding slowdown and strong competition from Myntra and Amazon.

In September 2014, Rocket Internet merged Jabong with four other online fashion retailers in Latin America, Russia, the Middle East, South-east Asia and Australia to create GFG.

View Full Image Binny Bansal and Sachin Bansal, co-founders of Flipkart. The move to buy Jabong looks like a desperate attempt by Flipkart to maintain its market leadership position, albeit at a very attractive price of $70 million. Photo: Hemant Mishra/Mint

GFG, which is jointly owned by Rocket Internet and Kinnevik, houses the German e-commerce company’s fashion businesses from emerging countries, including Jabong, Latin America’s Dafiti, Russia’s Lamoda, Namshi in the Middle East and Zalora in South-East Asia and Australia.

Earlier this month, Jabong expedited its sale process as Kinnevik and Rocket Internet were reluctant to pump in more capital into the company in a gloomy e-commerce market.

The valuation of GFG, which was €3.1 billion in July 2015, slid to $1.13 billion (€1 billion) after barely 10 months. In May, GFG said it raised $339 million (€300 million) from Kinnevik and Rocket Internet at a valuation that was a third lower than the previous round’s.

The move to buy Jabong looks like a desperate attempt by Flipkart to maintain its market leadership position, albeit at a very attractive price of $70 million.

Flipkart plans to run Jabong as a separate entity.

“We will leverage each other’s capabilities and focus on healthy profitable growth," said Myntra CEO Narayanan.

According to Narayanan, Jabong’s strength is in international brands and Myntra has strong private labels. “We can offer our private labels on Jabong," he added.

He also points at the target audience. While Jabong’s customer base is largely women, Myntra has a majority of male shoppers. “We want to together grow the market," he added.

Jabong offers more than 1,500 international high-street brands, sports labels, Indian ethnic and designer labels and over 150,000 styles from over a thousand sellers.

I am happy that we will now be able to offer to millions of customers a wide variety of styles, products and a broad assortment of global as well as Indian brands- Flipkart co-founder Binny Bansal on the Jabong acquisition.

“Fashion and lifestyle is one of the biggest drivers of e-commerce growth in India. We have always believed in the fashion and lifestyle segment and Myntra’s strong performance has reinforced this faith. This acquisition is a continuation of the group’s journey to transform commerce in India. I am happy that we will now be able to offer to millions of customers a wide variety of styles, products and a broad assortment of global as well as Indian brands," said Binny Bansal, co-founder of Flipkart.

Jabong managing director Sanjeev Mohanty quit on Tuesday. Mohanty will be part of Jabong till September.

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