Alibaba in talks to acquire Singapore’s Redmart for $30m-$40m

Visual of RedMart portal. January 2016.

The Alibaba Group, which earlier this year had acquired Rocket Internet-backed e-commerce firm Lazada for a consideration of $1 billion is set to further extend its footprint in the region with a possible buyout of grocery delivery service Redmart.

The development was first reported by TechCrunch, which cited three sources familiar with the transaction, and claimed that Lazada is in advanced discussions with the Singapore-based online grocer for a buyout priced between $30-$40 million, though Redmart is said to prefer an investment.

Redmart, that was founded in 2011, has raised $55 million in equity financing to date and was a first mover in the e-grocery space in Southeast Asia, but has faced financing issues over the last 12 months, having reportedly failed in its efforts to raise a $100 million funding round. Its last funding round was in 2014, when it raised $23 million from investors including  SoftBank and San Franciso-based Visionnaire Ventures.

Citing a source with knowledge of the matter, TechCrunch claimed that discussions with Singapore-based supermarket retailer NTUC and the sovereign wealth fund GIC fell through, though whether they were at advanced stages is unknown.

There has been a market buzz for months now that Redmart, which counts Garena, Eduardo Saverin and Softbank amongst its investors, has been seeking a buyer due to intensifying competition in Singapore, and reportedly rejected an offer from Amazon earlier this year.

If true, the acquisition by Lazada, which already retails electronics, fashion and baby items, will expand its product lines and enable it to enter a new vertical in the form of groceries and fresh products.

With regional business operations, a sellout would enable Redmart to expand into the wider region and leverage on Lazada’s existing infrastructure and resource networks. This also aligns with plans by Alibaba to expand into Southeast Asia, with Malaysia, Indonesia, the Philippines and Thailand predicted to reach a GDP of $1 trillion by 20130, according to a study by US-based global information company IHS Inc.

Indonesia is likely to play a key role in this strategy, given the growth of Indonesia’s e-commerce market. The Indonesian economy is the largest economy in Southeast Asia and is one of the world’s largest emerging markets, with its GDP forecast to grow at 5 per cent per year over the 2016-2020 period.

With a large and rapidly growing population of 250 million people, fast-growing household spending spurred by an increasingly affluent and growing volume of middle class households and rapid growth projected in a wide range of industries, the Indonesian domestic consumer market is positioned to be a very attractive market.

Also Read: Indonesia: Go-Jek purchases e-payment startup MVCommerce

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Online grocers’ future

Redmart has been reporting losses, according to Tech in Asia, with an operating loss of $21 million for 2014 and an operating loss margin of 78 per cent, maintained from 2014.

In relation to this, Redmart co-founder Vikram Rupani explained to Tech in Asia: “Non-cash losses are expenses on the P&L statement that have zero cash impact, for example, depreciation or fair market value adjustments. Similar to depreciation, fair market value adjustments for derivative instruments (like our preference shares) show up as expenses on the P&L but are added back to calculate cash flow from operations.”

As such, Redmart’s operating loss for 2015 is $21 million, It’s operating loss margin is 78 percent, which was maintained from 2014. It also maintains $126 million as at July 2016 in total liabilities (i.e. debt).

The company attributes most of this to preference shares, which are registered liabilities due to anti-dilution clauses granted to its various investors. However, with revenues growing since 2013, with $9.6 million in 2014 and $27 million in 2015, Redmart projects self-sustainability in mid-2017.

Despite that potential, the buyout offer at the rumoured price represents disappointing returns for Redmarts’ investors, meaning that the company is best suited to position itself with the market leader with significant financial resources

Recent developments have seen competitors like HappyFresh, which raised in excess of $20 million from investors, withdraw its service from two Southeast Asian markets, while HonestBee, which raised $15 million last year, currently maintains business operations in four cities.

This exemplifies the capital-intensive nature of the online grocery business, and the required investments into both manpower, infrastructure, logistics and marketing that it entails.

With many Asia-Pacific emerging markets offering higher long-term potential for these firms, and with online grocery services being identified as a major growth sector, the online grocery sector is also part of five categories representing a $1.7 trillion opportunity for Amazon.

However, as an e27 feature highlights, Southeast Asia represents a challenging and complicated market; demographics, operating costs, a competitive landscape and varying consumer preferences and languages across countries – in addition to uneven infrastructure developments – are much more complicated than many other markets.

Other major issues that are likely to play at least some role in the long-term – specifically for sourcing fresh produce – also include concerns around food security, as well as operating in Indochinese markets, whose agricultural sector was impacted by climatic weather phenomena,

Also Read:

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Indian e-commerce shows signs of becoming rational

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.