Impatient start-ups on acquisition spree for rapid growth

Impatient start-ups on acquisition spree for rapid growth

Bangalore: A number of young, impatient companies still raising funds from venture capital investors are acquiring smaller firms to plug gaps in their businesses and ramp up fast, rather than build these from scratch.

ValueFirst Messaging Pvt. Ltd, an enterprise communications company that earlier this year raised 70 crore from investors in its second round of funding, is in advanced talks to buy three companies, including a foreign one.

The Gurgaon-based company will invest $18-22 million (Rs 80-100 crore) in these acquisitions by the end of this year, said chief operating officer Kumar Apoorva.

“We want to expand inorganically. With buyouts of companies, we can grow much faster than the current 60-70% year-on-year growth. With the acquisitions that are in the process, we would grow (at) 120-125%," Apoorva said. “If we grow inorganically, we can go for an IPO (initial public offering of shares) in 15-18 months" rather than in about three years without acquisitions.

ValueFirst, he said, has at least 100 crore of cash in hand for its various expansion plans, including acquisitions.

Last week, Bangalore-based mobile ad network company InMobi, which is backed by investors Sherpalo Ventures and Kleiner, Perkins, Caufield & Byers, acquired US-based Sprout, a firm that provides advanced platforms for creating and distributing advertisements on mobile phones.

Earlier this month, shopping site, bought online books retailer for an undisclosed amount to add books to the list of products it sells. And in July, online ad network and audience measurement provider Komli Media India Pvt. Ltd acquired ZestAdz, a Los Angeles-based mobile ad platform, for an undisclosed amount.

“For these companies, the next level means experimentation into new lines and concept-level changes that can be helped through acquisitions," said Mukul Singhal, vice president, SAIF Partners, an early- to late-stage investor managing more than $3.5 billion.

Acquisitions become key especially when young, fast-growing companies do not have the bandwidth to explore new geographies or product categories and offerings on their own as their short-term goals keep them busy, he added.

ValueFirst, for instance, is scouting for acquisitions to both expand its product portfolio, particularly in the email and voice categories, and enter international markets.

“Currently, 95% of our revenues are from India. We want to go beyond India, in markets like the US, but we don’t want to start from scratch globally," said Apoorva.

Acquisitions have become a staple for growth-hungry ValueFirst.

In the past, the eight-year-old firm has purchased Cellnext Solutions Ltd, social media firm, and telecom software and product development company Packet Shaper Technologies Pvt. Ltd. “The growth of the company would have been slow if not for the acquisitions," said Apoorva.

For HomeShop18, the determining factor for its Coinjoos acquisition was the gap in its product portfolio, said chief executive Sundeep Malhotra.

Coinjoos was the shopping site’s first acquisition but more could be in the offing to add products such as baby foods and expand its men’s formal wear and lifestyle categories, he said. “We are evaluating quite a few deals," he said.

HomeShop18 is raising Rs100 crore from exiting investors, including SAIF Partners, GS Shopping and Network18, for scaling up its logistics, warehousing and technology platform. It will consider another round of fund-raising in about two months, Malhotra said, without giving details.

Mohit Agarwal, an associate with investment bank Equirus Capital (P) Ltd, said the companies being acquired are often young start-ups with promoters that may have decided to cede control due to cash constraints and as a way to protect the lead teams.

“It is important for the buyer to incentivize the original team to continue as they have some vision on what they have developed," he added.

SAIF’s Singhal said the acquisitions are essentially a way to boost size faster and not necessarily a tool to provide quicker exits for the investors. “Definitely, the aspiration is to scale up faster and reach a level conducive for exits," he said. “This, however, does not mean that we believe an exit can be made six months after the acquisition."