Movement could happen for reasons like acqui-hiring for companies that are running low on cash, classic consolidation among companies playing in a crowded market, plugging gaps in digitization of one’s own company
NEW DELHI: The startup space in India is looking at a lot of mergers and acquisitions this year and the next. Stakeholders say bridge funding deals, talks on acquisitions and investments have already begun.
“We’ve seen it as a natural movement whenever there are slowdowns even without a specific crisis," said Karthik Reddy, Founder, Blume Ventures. Movement could happen for four reasons -- acqui-hiring for companies that are running low on cash, classic consolidation among companies playing in a crowded market, plugging gaps in digitization of one’s own company, and tech acquisitions where a big company buys a smaller one for its tech.
“Four of five Indian unicorns have asked us whether we have any good companies to offer them, which fit in their general interest areas," said Reddy.
“I think consolidation in general was expected this year," said Shuvi Shrivastava, Vice President of Lightspeed India. “We’re seeing early signs of this in the US and in the next few months we’re bound to see more happen in India as well," she added.
Most stakeholders say that industry movements in the next three to four months will likely be around startups who are running low on cash. Especially companies who were trying to raise funds already but couldn’t successfully do so by February this year. “A lot of stress deals are going to happen for sure," said Sonam Chandwani, Managing Partner, law firm KS Legal & Associates. Chandwani said the firm has come across a lot of bridge-funding requests and if such companies fail to get deals, they will be forced to look at acquisitions.
Akash Karmakar, Partner at Panag & Babu Law Offices said there has been a move in the Fast Moving Consumer Goods (FMCG), gourmet coffee and other markets, where the EBITDA projections have not been met due to the pandemic. “Investors will drive the companies towards strategic acquisitions even at a lower value so that they can make their buck despite the pandemic," he said.
That said, there are people who disagree with the whole idea of startups being forced to sell as well. “If anything has happened because of covid, it’s made the valuation game very uncertain," said Raghu Mohan, CEO and Co-Founder of IBC Media, a company that runs technology-driven open innovation programs for technology firms, corporates, governments and investment firms. This has resulted in a lot more people being aggressive with respect to cutting deals and looking for acquisitions.
Mohan pointed out that startups having lower runways isn’t new, so the status quo doesn’t change due to covid-19. A recent survey by Nasscom had revealed that 70% of Indian startups had just about three months runway at the moment. He said it’s a very good time to “go shopping" because investors can play hardball on valuation right now. “A lot of VCs are doing that even to the point of bullying," he said.