Reliance Industries, led by Asia’s richest man– Mukesh Ambani, captured the attention of the world when it raised a staggering US$ 20 billion in a matter of months from the likes of tech giants like Google and Facebook and renowned VC firms like KKR, General Atlantic, and Silver Lake. The US$229 billion industrial conglomerate has been on a different trajectory altogether ever since the launch of its 4G phone service Jio in 2016. But not everything is hunky dory; Reliance’s deal to acquire Future Group’s retail business seems to have hit a roadblock, and its acquisition of JustDial seems questionable. So let’s dive into the seventh edition of Add to Cart and analyse Reliance Industries’ acquisitions.
The analysis is based on data from Crunchbase. The startups have been classified according to various industries based on data from Pitchbook, and the sector classification is based on Global Industry Classification Standard (GICS). The sector classification is subjective and has been made considering the sector/industry that the startups closely resemble. A total of 26 acquisitions have been considered for this analysis, and this is by no means an exhaustive list of all the companies that Reliance has acquired over the years. Of the 26 startups, the acquisition price was available for 17.
Reliance has made 85% of its acquisitions in its home base of India, and the remaining are equally split between the US and the UK.
The consumer discretionary sector accounts for 42% of the acquisitions, and almost all of the acquisitions were made in the past two years, which signifies the sector’s importance to Reliance.
In August last year, Reliance Retail, a subsidiary of Reliance Industries, announced its largest acquisition yet of Kishore Biyani-led Future Group’s retail business spanning grocery, apparel and lifestyle for a staggering US$ 3.4 billion. The deal gave Reliance access to some of the most iconic Indian retail brands such as Big Bazaar, Nilgiris, fbb and Brand Factory. But just when everybody thought that it was a done deal, Amazon put a wedge in Reliance’s ambition and approached the Emergency Arbitrator at Singapore International Arbitration Centre (SIAC). Why did Amazon do this?
Early last year, Amazon signed a deal with Future Coupons, the promoter entity of Future Retail, to invest Rs 1400 crores (~US$187 million) in exchange for a 49% stake in the business. Future Coupons, in return, held a small stake (~9%) in Future Retail, and therein lies the reason for Amazon blocking the deal. Amazon’s deal with Future Coupons gave it special rights to assets held by Future Retail, and a certain clause in the shareholder agreement prevents Future Group from selling brands such as Nilgiris and Big Bazaar to some “restricted persons”, including Reliance.
The SIAC sided with Amazon and blocked Future Group from completing the transaction, but Future Group ploughed through anyway, stating that the Emergency Arbitration was alien to Indian law. Eventually, the matter made its way to the Supreme Court of India, which also sided with Amazon. So as of now, the deal is in a logjam.
Reliance Retail Ventures Limited (RRVL), a subsidiary of Reliance Industries, acquired home décor giant Urban Ladder in Nov 2020. The deal involved RRVL buying a 96% stake in Urban Ladder for a cash consideration of Rs 182.12 crores (~US$24 million); RRVL also proposed making a further investment of Rs 75 crores (~US$10 million) by Dec 2023. Other prominent acquisitions in this sector include toymaker Hamleys, online grocery platform Milkbasket and UK-based hotel Stoke Park.
The communication services sector accounts for 19% of the acquisitions. A majority of the acquisitions in this sector were made in 2018. Local search-related service provider Just Dial (JD) was acquired by Reliance Retail in July 2021 for US$765 million. With a median operating profit of Rs 50 crores and a median operating profit margin of ~25%, Just Dial is not exactly a cash cow. So why did Reliance acquire it?
To understand why, we need to understand Just Dial’s business model. The company generates revenue by selling listings to small and medium enterprises across the country. Small business owners can list themselves on JD’s local search engine platform for a fee which will help them generate leads. But clients didn’t see JD’s value proposition, so JD introduced new services such as Search Plus, which enables users to directly transact with businesses on the platform, and JD Omni, which helps businesses with billing, inventory management etc. Both these services received a lukewarm response. But Just Dial’s latest service, JD Mart, has received a decent response. JD Mart represents Just Dial’s foray into B2B e-commerce. Since Reliance has also been trying to foray into this segment, acquiring Just Dial, which contains details of 31 million businesses, could give it a jumpstart.
Reliance Industries has spent a whopping US$ 5.3 billion on 17 acquisitions. Close to 92% of the acquisition price has gone towards these three industries- holding companies, information services (B2C) and media and information services (B2B). Reliance’s top three acquisitions are Future Retail, Just Dial and Network18. The year 2019 witnessed the most number of acquisitions- 10, followed by 2018 with 6.
Given the incredible business acumen of Mukesh Ambani and his ability to turn a profit, it would be interesting to see how these acquisitions help Reliance Industries disrupt new segments.
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