Why fate of Snapdeal's employees is a big question if sale to Flipkart goes through

Acquisition of start-ups have been followed up with layoffs over the last few years. Will Snapdeal's 2,500 employees suffer the same fate?

Snapdeal Co-founder Kunal Bahl. Photo: Snapdeal

Snapdeal's largest investor SoftBank has initiated the sale of Snapdeal to Flipkart by offering its founders Kunal Bahl and Rohit Bansal $50 million in exchange for their stake in the e-commerce company, said a recent Financial Express story quoting unidentified sources.

It further said that Bahl and Bansal together own 6.5% equity stake in Snapdeal, will receive $25 million each from the sale of their shares. SoftBank holds a little more than 30% stake in Snapdeal and has started the process of acquiring shares from other investors such as Kalaari Capital, Nexus Ventures and Bessemer Venture Partners. While Kalaari Capital owns less than 8% shares in the e-commerce company, Nexus Venture Partners' equity is about 11%.

It has been reported earlier in March that Snapdeal was in talks with Flipkart and even Paytm for the sale of the company. This comes with the mounting losses of Snapdeal, which was at Rs 1,072 crore as cash and bank balances as on March 31, 2016, according to the filings with Registrar of Companies (RoC). Besides this, the report said that currently is left with around Rs 500 crore in the bank and is believed to be losing Rs 50 crore every month.

If SoftBank buys the stakes of the founders and other investors, and manages to push through the sale of the company, Flipkart will get a significant push ahead in the market which has been coming under tremendous strain from Amazon.

However, the bigger question about the company's sale to Flipkart will be fate the 2,500 employees. The acquisition could lead to further layoffs in the company. Snapdeal had earlier in February laid off around 600 employees.

This was seen as the FE report said that the conversation has largely been around deciding the fate of the 2,500 employees who currently work at Snapdeal.

The chances of many of employees being laid off after the acquisition are be especially higher as there will be duplication of several positions and those employees that are seen as a burden could be laid off.

This has been seen in the past with the acquisition of e-commerce companies that has always been followed by lay offs. This is especially true when companies are acquiring rival companies which are in the own segment and have the same processes involved. This leads to a lot of duplication of positions and twice the amount of workforce doing for a single work process.

One of the biggest example was Ola acquiring competitor TaxiForSure in 2015 and a year later it shut down the company which led to nearly 1,000 employees of the taxi-app company will be laid off.

Even Flipkart laid off nearly 1,000 employees in July 2016 after an acquisition. This came after Flipkart's subsidiary Myntra acquiring struggling fashion e-commerce firm Jabong for Rs 470 crore just a week earlier.

Also read: Death by acquisition: Here's how ecommerce firms plan to kill competition

However, Snapdeal in a letter sent to employees on Sunday assured them of the safety of the their jobs and their appraisals. Bahl said, “While our investors are driving the discussions around the way forward, I am reaching out to let you know that the well-being of the entire team is mine and Rohit's top and only priority.”

"We will do all that we can, and more, in working with our investors to ensure that there is no disruption in employment and that there are positive professional as well as financial outcomes for the team as the way forward becomes clear. Let me repeat, your well-being is our No 1 priority," the letter said.

Flipkart currently employs around 8,000 permanent employees and 20,000-25,000 contract workers who are part of their supply chain. It was also reported in a month earlier that the company is looking to hire 20-30% additional workforce in 2017.

This will mean that lesser space for the 2,500 Snapdeal employees in the company after the acquisition.

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