The buyback, probably the biggest in India’s new-age web financial system, is a part of PhonePe’s newest $1.5-2 billion funding spherical led by Walmart, the place the US retailing behemoth and personal fairness fund General Atlantic will infuse major capital of about $1 billion, with the remaining comprising a secondary share sale.
Multiple present and former workers have been briefed on the upcoming liquidity occasion and a proper communication is anticipated in a month, sources aware of the event mentioned on situation of anonymity.
ETtech
Readjustment in Valuation
The total transaction will even result in a readjustment in Flipkart’s valuation to about $33 billion from $37.6 billion earlier, as PhonePe may have a separate shareholding construction, in keeping with folks within the know.
PhonePe, valued at $5.5 billion, is presently marked as an asset inside Flipkart’s valuation.
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“We don’t comment on speculation about our business,” a spokesperson for Walmart mentioned. Flipkart, PhonePe and General Atlantic didn’t reply to ET’s emails searching for remark until press time Monday.
The worker inventory possession plan (Esop) buyback is critical not solely due to its dimension but additionally because it comes at a time when the home expertise and startup ecosystem is witnessing a funding crunch, consistent with what’s being seen within the international expertise business globally.
The Flipkart Group (which incorporates vogue portal Myntra) is providing present traders and workers (Esop holders) the choice of both reinvesting within the newest spherical or promoting shares in secondary transactions.
“At a $12 billion valuation for the PhonePe transaction, the employee group will see liquidation of around $700 million, taking the total round size to well over $1.5-2 billion, including the secondary share sale,” one other individual within the know of developments mentioned. “Employee group shareholders are likely to sell their shares to Walmart as investing in PhonePe in a new round would also incur a significant tax payout for paper money gains in PhonePe as opposed to a cash payout…”
During an Esop buyback, workers should pay tax – which is the distinction within the worth at which they have been allotted the choices and the worth they’re promoting it at.
In a secondary share sale, incoming traders, or the corporate itself, buys shares from present shareholders, together with Esop holders.
SoftBank Vision Fund, Qatar Investment Authority, DisruptAD, Khazanah Nasional Bhd, Tencent, and Tiger Global are amongst Flipkart’s backers.
PhonePe’s recent funding
While the Bentonville-based retail big is anticipated to plough $700-750 million into PhonePe, General Atlantic could make investments as much as $250-300 million, in keeping with folks briefed on the matter.
Flipkart’s present traders resembling SoftBank and GIC are amongst these which can be nonetheless finalising if they’ll take a place on PhonePe’s cap desk.
“The final size will change based on what the institutional investors decide,” one other individual mentioned.
Flipkart’s Esop buyback historical past
Flipkart, the poster little one of native startups, is thought for its common Esop buyback programmes. In 2021, the Bengaluru-based etailer bought $80-85 million price of shares from workers as a part of its $3.6 billion financing spherical.
Previously, when Flipkart undertook a $500 million buyback as a part of the Walmart deal in 2018, solely present workers have been capable of promote their vested inventory choices. The buyback was accomplished over a interval of 3-4 years.
ETtech“This would be nearly an IPO-like exit for employees, whenever it closes formally, especially at a time when large IPOs have also been postponed in the next year as markets continue to remain volatile,” one of many sources mentioned.
PhonePe’s workers who had beforehand been allotted inventory choices will see a rise of their holdings on paper, for now. It isn’t clear if PhonePe will undertake any employees share buyback as a part of this funding spherical. In February final yr, PhonePe mentioned it will grant inventory choices price Rs 1,500 crore to all its workers.
Esops are used as a serious retention software by startups.
Last yr,
ET reported that near 40 Indian startups purchased again Rs 3,200 crore price of employees shares since July 2020, in keeping with information from ESOP Direct.
Earlier in May, funds startup
Razorpay executed a $75 million secondary share sale the place 650 of its present and former workers bought their choices.
No plan for speedy IPO
The mega Esop buyback coincides with the web retailer’s transfer to push again its Initial Public Offering (IPO) amid a turbulent public marketplace for expertise companies.
Kalyan Krishnamurthy, CEO of the Flipkart group, mentioned throughout The Economic Times Startup Awards held in Bengaluru on November 19
that he had not dedicated to an IPO.
There are three massive the explanation why an organization goes in for an IPO: first, as a result of it’s a big fundraising occasion; second, it helps in market-driven worth discovery; and third, to supply liquidity to shareholders, he had mentioned.
“These are the big benefits of an IPO. On the flip side, you have to start sharing how you run the company and manage the many investors; you do not control the company’s future very clearly on your own. So, my philosophy is that if you do not need the first three pieces and can manage those through a private round. I do not necessarily see why we will do a public listing,” Krishnamurthy mentioned.