Acquisition is increasingly becoming the buzzword for Indian startups with deep pockets and strong balance sheets as they rush to gobble up smaller rivals who are staring at a survival issue amidst growing uncertainty in the market.
According to data available with Tracxn, as many as 14 acquisitions were clocked in the country’s burgeoning startup ecosystem in January, a 17% jump from December.
While these include prominent examples from all sectors, fintech led the pack with at least three transactions in January. While India’s homegrown InCred Capital made headlines for acquiring retail-focused digital investment platform Orowealth in an all-cash deal; Delhi-based Ambit Finvest bought out the MSME business of digital lender SME Corner to empower its lending mechanism. Meanwhile, in a cross-border transaction, Xare, a Dubai-based fintech startup, acquired Bengaluru’s Rive for an undisclosed amount.
Among other startup acquisitions in the country, Metaman bought out Drip Project for $1 million, while ITC took over Yoga Bar for an undisclosed amount in January.
Going forward, too, the acquisition trend is expected to gather steam as the journey of some startups becomes even more difficult as fund managers pull their purse strings towards fresh investments amidst economic uncertainty while others with strong balance sheets continue to rake in capital.
“We see this as a combination of two major factors,” said Sagar Agarvwal, co-founder and managing director of Beams Fintech, explaining that “with the macroeconomic slowdown, investor activity today is more focused on profitability and strong growth fundamentals.”
As the private markets in India mature, large players in edtech and fintech, among other sectors, will naturally look to consolidate. “There has been a rising interest in growth-stage deals in the past two years from both global and domestic PE/VC funds, which has made the capital accessible for the same,” said Agarvwal.
This probably explains why fintech as a sector saw the most amount of funding at $637 million in January 2023, recording a whopping 144% jump from December 2022, show data available with Tracxn.
“Through 2023 we expect this [the consolidation trend ] to accelerate with larger players deepening their geographic and business model diversification through organic and inorganic expansion,” Nruthya Madappa, head of growth and capital development at 3one4 Capital, told DealStreetAsia.
India witnessed as many as 229 mergers and acquisitions (M&A) last year. While the number was just a tad lower than 242 in 2021, experts say this is because of fewer deal closures due to the overall market uncertainty.
Currently, the primary goal of startups is to navigate the crisis and develop their own tactics for survival. Due to various factors such as geopolitical tensions, a decline in equity markets, higher interest rates, and inflation, many startups are having to take drastic measures like layoffs and salary reductions to cope with a severe shortage of funding.
“As the funding environment gets tougher, we see startups readjusting their priorities by exploring different means to extend their runway and get to profitability faster. This scenario also means many early-stage startups may also end up being targets for M&A. said Shyam Menon, partner at Bharat Innovation Fund.
“Later-stage startups with growth equity investors on the cap table may have more options to extend their runway by reducing headcount, accessing convertible debt/venture debt financing, equity bridge rounds, etc – options many early-stage companies may not have. In such times, later stage, well-funded players look to find good bolt-on acquisition options at more palatable valuations,” added Menon.
According to industry estimates, as many as 20,484 employees were laid off in 2022 by around 67 startups such as unicorns BYJU’S, Chargebee, Cars24, LEAD, Ola, OYO, Meesho, MPL, Innovaccer, Udaan, Unacademy, and Vedantu.