FreeCharge, MobiKwik in merger talks

New entity is likely to get a top-up of $200 million from a Chinese investor

After consolidation in the online market space, it seems the turn of mobile wallets. FreeCharge plans to merge itself in an all-stock deal with MobiKwik, said sources close to the companies.

Sources say after the merger, the new entity is likely to get a top-up of $200 million (nearly Rs 1,300 crore) from a Chinese investor who is eager to make an entry into India. Also, some banks have indicated they’d be interested to invest in a merged entity.

However, it should be noted that the talks are only at an initial stage. Interestingly Sequoia Capital is a major investor in both the mobile wallet entities.

FreeCharge, part of online marketplace Snapdeal, has been on the block for some time. According to sources, Jason Kothari, recently appointed as chief executive officer (CEO) of FreeCharge, has been in talks with investors in the US and China to sell it. PayPal was initially interested in putting a sizable investment in FreeCharge but the deal could not be closed.

MobiKwik has also has been, for some time, trying to raise funds. It has been on a major expansion mode and opened 13 new offices,  recruiting a little more than 1,000 employees.

The company has been trying to show investors that it is a serious entity in the financial technology space. Co-founder Upasana Taku and founder-CEO Bipin Preet Singh have had meetings with investors in the US and in other countries to raise new rounds of funding.

“The talks started last week as people from MobiKwik and Freecharge met to discuss a merger. This would make them one of the largest in the market. The Chinese investor is interested in putting in around $200 mn in the merged entity as only a bigger player would be able to hold its own against Paytm,” said an informed source.

While MobiKwik said it would notcomment on the issue, FreeCharge and Snapdeal did not respond to queries.

Earlier, there was also talk of selling FreeCharge to Paytm. However, nothing much has happened on that.

According to sources, both MobiKwik and FreeCharge would be worth around $300 mn each. And, a merged entity could be valued at anything between $700 mn to $1 billion.

At present, the Vijay Shekhar Sharma-run Paytm is the biggest mobile wallet in the market, with over 200 mn users and a host of services. FreeCharge, say sector experts, was the second biggest. However, in the past year, both Snapdeal and FreeCharge have imploded and are on the block.

There is talk of a sale of Snapdeal to Flipkart being in the final stages. FreeCharge, experts said, might be sold separately if that is possible.

MobiKwik recently said it planned to invest Rs 300 crore in office expansion, technology and marketing. It wishes to grow its user base from the current 50 mn, to 150 mn, in a year. This increase would push its annual gross merchandise value (GMV) to $10 bn by the end of a year, from the current $2 bn (Rs 13,300 crore), it says.

Photograph: Reuters