Big fish swallowing the minnows

Recently, artisanal lifestyle brand Jaypore was acquired by Aditya Birla Fashion and Retail Limited (ABFRL) reportedly for Rs 110 crore. In April, artificial intelligence (AI) firm Haptik was bought out by Reliance Jio for a stupendous Rs 700 crore, while Reverie Language Technologies, which builds technology solutions for Indian languages, was acquired by Reliance for Rs 190 crore.

These start-up acquisitions by well-established behemoths of India Inc mark a dynamic shift from the buyouts of start-ups by global firms such as Walmart, Facebook or Twitter.

“Acquisitions by Indian conglomerates or Indian promoter-led companies are going to present far more interesting opportunities for start-ups, as Indian conglomerates organise themselves for the newly emerging digital environment,” says Pankaj Karna, managing director, Maple Capital Advisors. 

For a while now, Indian business houses have been showing interest in start-ups by way of picking up small stakes. Last year, Marico picked up 22.5% stake in Revofit, which is a curated marketplace for holistic fitness and wellness. While prior to that, Emami picked up a 30% in male grooming start-up 'The Man Company'. Ratan Tata has invested in a host of start-ups from Curefit, UrbanLadder to NestAway.

But a domestic acquisition of start-ups is something that has been missing for a long time in the Indian industry, says Sanjay Swamy, managing partner, Prime Venture Partners. “It is crucial for the ecosystem since large business houses can leverage their reach and market presence to give entrepreneurs not just a strong financial outcome, but an on-going chance to follow their mission and continue to work on it post the exit with renewed zeal,'' says Swamy.

Experts say start-ups can leverage the acquisitions as an opportunity to scale up at a rapid pace, expand their global presence and also enter new business verticals.

For start-ups, any kind of collaboration with a globally recognised business implies a multitude of benefits, says Anirudh Damani, managing partner, Artha Venture Fund. “Conglomerates are masters at marketing, branding, and delivering quality at scale. Start-ups surely have a lot to learn from these giants.”

Jaypore for example, is focused on its omnichannel expansion and according to its CEO and co-founder Puneet Chawla, the venture is excited to leverage their core, which is their online strength as they work to build their offline channels and is confident that this association with ABFRL will help them to accelerate the next stage of growth.

“We hope that this partnership will accelerate our growth both on the domestic front and globally. ABFRL has an impressive track record in building global brands and we look forward to their strategic support for our next leg of growth,” says Shilpa Sharma, co-founder, Jaypore.

According to Karna, conglomerates present an additional pool of capital and exit for investors who back these start-ups. ''Some of the strong and well-known conglomerates are better oriented to the new digital economy now and are well positioned to capitalise on the opportunities. Start-ups can gain from this.''

For the conglomerates, such acquisitions also signify their zest to get digital savvy. “Since start-ups these days are big on data analytics and new emerging technologies, conglomerates can have access to real-time consumer feedback to decode consumer behaviour. The conglomerates can utilise the new technologies of acquired start-ups to remain ahead in the digital race,'' feel experts.

Swami says,“it is a positive sign that shows Indian conglomerates are valuing technology and product innovation. It is more about being acquired by an older economy company which may not have the software or new-age thinking in their DNA.” Swamy believes that a big part of such M&As is about infusing young and new-age thinking into larger older-economy businesses. “This is less likely to be the case in a technology company such as Google or Microsoft or Facebook who are used to acquiring stat-ups for their niche talent and technology and integrating them quickly.”

Moreover, the conglomerate acquisition of a start-up could perhaps have a bearing on the consumers as well. According to Karna, consumers might actually get to see some of these start-ups survive owing to the acquisition and thus, be assured of continuity in terms of the offerings, and in many cases, get to benefit from the cross-sell efforts of conglomerates from such platforms.