(Bloomberg)—Flipkart Ltd. will buy Rocket Internet SE-backed online retailer Jabong for $70 million in cash to create India’s biggest fashion e-commerce business.
Global Fashion Group, the parent of Jabong that’s backed by Rocket and Kinnevik AB, agreed to sell the business to focus on other markets, it said in an emailed statement. Flipkart, No. 76 in the Internet Retailer 2016 Asia 500, will combine the business with its Myntra unit, creating a company with a base of 15 million monthly active users who shop for brands including Forever 21, Swarovski, Topshop and The North Face.
Jabong has struggled to compete with Myntra in the race to raise funds and increase market share in India, where e-commerce giant Amazon.com Inc. (No. 4 in the Asia 500) has entered the fray. Online fashion retailers have used aggressive strategies for growth, including same-day delivery, doorstep fitting and sponsoring fashion events.
“The price reflects the competitive market conditions in India and it is the result of ongoing talks for several months with different parties,” Romain Voog, chief executive officer of GFG, said in an interview. “Profitability is a key focus for GFG. The sale of India is part of a strategy to refocus GFG on core markets with high growth potential and large sales potential.”
Rocket, Germany’s highest-profile internet company, is trying to prove that a publicly traded backer of startups can be a rewarding investment for shareholders. Rocket, which funds companies in areas including food delivery, furniture and fashion, listed its shares in 2014 but has seen the stock tumble about 47% in the past year as some of its investments have faltered. Analysts have questioned its ability to wring profitable growth out of startups that operate in unproven markets.
Rocket owns 20.4% of GFG, with Kinnevik owning 26%.
Started in 2012, Jabong generated sales of 126 million euros ($139 million) and reported an adjusted loss before interest, tax, depreciation and amortization of 56 million euros for the 12 months ended March 31. GFG last week raised 330 million euros at a valuation of about 1 billion euros—less than half what the holding company was worth last year.
Fashion and lifestyle are one of the biggest drivers of e-commerce growth in India, Flipkart CEO Binny Bansal said in a statement Tuesday. Jabong’s suitors included one of India’s biggest offline retail entrepreneurs Kishore Biyani and his Future Group.
Jabong is only a small part of GFG, which also operates Lamoda in Russia, Dafiti in South America, Namshi in the Middle East, the Iconic in Australia and New Zealand and Zalora in Southeast Asia.
The deal is expected to close in the third quarter, the company said.
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