Unfortunately, exit through an acquisition - which most category-specific companies and their investors hope for - will come only to those that have built scale in terms of products on the site, repeat usage and brand positioning with a sizeable set of consumers and, of course, the most important thing is whether they have differentiated well from a dozen others.
The decision to buy Exclusively is no doubt a smart move for Snapdeal, which has built its marketplace bottom-up, strengthening category after category.
Exclusively has built a strong base in the luxury fashion space, having netted big names in Indian fashion design - Manish Malhotra, Tarun Tahiliani, Manish Arora, Anita Dongre, Rohit Bal, Gaurav Gupta, JJ Valaya, Ritu Kumar, Varun Bahl, Shivan & Narresh and Neeta Lulla.
Its portfolio of premium fashion e-tailers includes Angsutra, Bungalow 8, CMYK, Ekaya, En Inde, Le Mill, Neel Sutra and Studio Rudraksh. Snapdeal had other choices like Limeroad or Fashionandyou among the many others, but adding Exclusively to its kitty is intended to tap into a much larger and fast-growing category than general fashion. Luxury products and services is a $14-billion market in India, growing at 30 per cent YoY.
For all the top horizontal players in ecommerce, who have already on-boarded hundreds of regional small and medium companies, now bringing global and premium fashion brands on their platform is the next big thing. About a week ago, Amazon launched US-based iconic watch brand Bulova exclusively on its platform for India sales.
Any significant M&A in the ecommerce space in India has been dominated by 'fashion companies' and Snapdeal's recent acquisition of Exclusively falls in the same line.
Fashion is definitely one of the largest categories to play in for all horizontal players because of multiple reasons - a huge underpenetrated market, especially when one looks at the penetration of top brands beyond the metros, and the most important one being high margins to the tune of 40 to 60 per cent.
High margins in the fashion business help beat the single-digit margins in other verticals such as electronics, books or grocery.
All other acquisitions of smaller ecommerce companies by bigger fish were distress sales and did not work out for the acquirers, whether it was the first of its kind acquisition of electronics e-tailer Letsbuy by Flipkart or of Urbantouch by Fashionandyou.
Several other such buyouts have happened but most have caused post-acquisition integration issues, leaving the acquirer with no better option than to shut down the acquired company. Both Letsbuy and Urbantouch were shut down within months of acquisition.
On the other hand, in the fashion-acquires-fashion category, the most significant ones have worked. Look at Myntra's $300-million acquisition by Flipkart last year or, in a similar development, Rocket Internet-backed Jabong being merged with four other fashion entities in other countries - Dafiti in Latin America, Lamoda in Russia & CIS, Namshi in Middle East and Zalora in South East Asia & Australia to form a common entity Global Fashion Group or GFG.
Rocket Internet's move was intended to make it the largest online fashion entities across continents. While Myntra gained from getting access to Flipkart's wider consumer base and logistics network, Flipkart logged into the strong fashion brand Myntra had built and its private labels - Dressberry, Roadster etc.
These are the acquisitions that have unlocked value both ways. Acquisition has not been the end of the road for the founders but an opportunity to build a much bigger business by leveraging resources such as customer base, logistics network and marketing muscle.
As most smaller companies other than the market leaders will exceedingly struggle to raise money, the large better-funded acquiring company will help them expand their presence and reach.
The common element in all the acquisitions - Myntra, Jabong and Exclusively - is that these companies have retained their independent entities and functioning, to retain customers who have become familiar with their brand.