Of late, the start-up sector in India has been rife with mergers and acquisitions involving enterprises of every size and shape.

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Over 300 M&A deals were struck over the last two years, some involving big names like Makemytrip, Quikr.com, PayU, Flipkart, Ola and FirstCry.

And 2018 is going to mirror the consolidation activity of the previous years, say experts.

Vivek Mansingh, general partner, Your Nest, an early stage venture capital fund, says, “We expect the M&A activity to continue through 2018 and beyond. Domestic activity should strengthen further due to a continuous consolidation across sectors and availability of funds.”

Maneesh Bhandari, CEO, Propeluss, which drives engagement among start-ups, investors and partners, says they have spoken to over 50 companies in the last three months regarding M&As or strategic investments/partnerships with start-ups. “Over 90% of those companies (which include larger start-ups and MNCs) have shown keen interest. While the past few years saw consolidation mainly in e-commerce, we expect this in sectors like edutech, healthtech, agritech, fintech in the near future.”

E-commerce startup-turned-biggie Flipkart has by far made the biggest and most number of deals, acquiring over 10 other start-ups, including the likes of Letsbuy.com, Myntra, Jabong and eBay’s India arm.

However, Apul Nahata, mentor-in-residence, Brigade Real Estate Accelerator Programme (REAP), feels the M&A scene in India is not mature enough “as India is still an emerging market from that perspective”.

A report by Mind the Bridge and Crunchbase, which track global start-up exits states that in developed markets like the UK and the US, about 48% of start-up acquisitions are done by other start-ups, with 66% of the start-ups acquired having raised over $50 million. “Only a limited number of start-ups have raised that kind of money in India. The start-up ecosystem here is yet to reach that stage to drive M&A activities in a large scale,” says Nahata, further explaining that M&As will primarily be via acqui-hire (acquiring mainly for the talent) and distressed sale. “This has been happening over the last couple of years and I think it will still continue for at least another few quarters. As series B and onward funding are getting difficult, some start-ups will be forced to sell or get acqui-hired,” says Nahata.

According to Varun Gupta, CEO of travel tech company Goomo, which recently acquired B2B vehicle rental marketplace Wagonbee, the start-up market is getting increasingly polarised between the well-funded and the under-funded players. “I think we will see consolidation across sectors where stronger and better funded players will merge or acquire strong businesses that enhance the overall value propositions for their customers. This should result in lower overall discounting pressure in the market; better cash burn profiles, customer and geography diversification and enhanced solutions for their customer base,” says Gupta. Goomo is focused on acquiring technology led travel companies with the objective of becoming ‘’one of the top three players in travel in the country in the next five years,” says Gupta.

Others such as the health tech start-up Easybuyhealth.com is also looking to seize every opportunity “to acquire synergies to speed up our learning curve and improve our product range,” says Gagan Kapur, co-founder & CEO. Kapur says that anything that allows leverage in their focus area and carries reasonable value is an acquisition target for them.

Experts say M&As carry tremendous benefits for the start-up ecosystem.

According to Mansingh, M&As provide a healthy exit for start-ups, in addition to bringing in capital and resources to scale. For the acquirer, says Mansingh, it can add new products, technology, markets, geographies and talent to help with the top line and bottom line growth.

M&As also bring in a greater level of efficiency to the acquirer in the current fragmented marketplace, say experts. “We share a common vision of how this space can be organised better via apt solutions for our partner vendors as well as customised offerings to meet the evolving customer needs,” says Gupta, further explaining that like the Wagonbee acquisition, Goomo had earlier acquired Zopky, a holiday marketplace start-up to build its presence in the holiday packages space. “We have already integrated the base tech stack of Zopky in the core Goomo platform and expect it to start delivering exciting packaging solutions to our customers shortly.”

The other ways in which consolidation will benefit the start-up ecosystem, says Nahata, is by the M&A deals acting as catalysts to future and current entrepreneurs.

“Angels and VCs get exit, which helps them invest more money in the start-up ecosystem. When investors see exit, they are able to invest in younger start-ups and help them work through the perils of building and scaling an enterprise,” says Nahata.

TOP ACQUISTIONS IN THE LAST TWO YEARS

  • Ibibo Group – Acquired by MakemyTrip for $720 mn in Feb’17  
  • CommonFloor – Acquired by Quikr.com for $200 mn in Jan’16  
  • CitrusPay – Acquired by PayU for $130 mn in Sept’16  
  • Jabong – Acquired by Myntra for $70 mn in July’16  
  • BabyOye – Acquired by FirstCry for $54 mn in Oct’16  
  • FoodPanda – Acquired by Ola for $32 mn in Dec’17