Mergers & acquisitions on rise as startups diversify into newer spaces

With funding under pressure and its subsequent impact on valuations, larger startups are looking for mergers and acquisitions (M&A) as they diversify into newer spaces and add capacity.

This trend was also reflected in the first half of 2022 (January-June). According to Tracxn analysis, till July 26, total acquisitions stood at 169, with the average acquisition price at $90.2 million. A significant jump compared to the first half of 2021 when a total of 115 acquisitions fetched an average of $180 million. Between January-December 2021, 244 acquisitions occurred, and the average acquisition price was $227 million.

Another reason for the M&A activity picking up is because of fewer initial public offerings (IPO), with tech stocks getting hammered in India as well as globally. 

Karan Mohla, Partner, B Capital, a venture capital firm co-founded by Eduardo Luiz Saverin, Facebook co-founder, said that though there was a positive activity in the capital markets in 2021, there could be a lot of M&A activity this year in the startup ecosystem as companies are looking at inorganic ways to grow.

“I think the M&A activity could be interesting as the companies which have capital and are growing, may look at adjacent places, where they see good value. Those are the opportunities that some of our (portfolio) companies are also looking at,” said Mohla, adding that for many companies, it is an avenue for inorganic growth and expansion.”

This growing M&A trend has continued so far in the first half of this year.

Leading the M&A list, Pine Labs, had recently announced the acquisition of software firm Setu for their API capabilities and to enable broader integration with open payment systems.

B Amrish Rau, chief executive officer of Pine Labs, said Setu will add value to the Pine Labs platform in terms of ‘embedded’ financial services and open banking, which are going to be the way forward.

“Embedded finance market value is expected to exceed $138 billion by 2026 as APIs are intensifying the competitive fintech landscape,” said Rau. “Setu helps their customers, merchants, and brands build beautiful experiences, so consumers can engage with payments and financial services on their terms.”

The online education space also saw acquisitions. Even as the challenge of offline classes continues to play out, several players are expanding into new verticals to bring more offerings. upGrad acquired INSOFE to strengthen its data analytics courses, Infinity Learn acquired Wizklub to augment foundation skills courses for the K12 segment and Great Learning acquired Northwest to address the professional skilling segment for enterprise clients.

The biggest M&A deal in terms of value was the Zomato-Blinkit deal, giving the former a presence in the quick commerce space. Similar deals that allowed companies to expand their geographical footprint was OYO who acquired Direct Booker to strengthen its presence in Europe and Croatia.

The logistics space too has seen consolidation with the recent deal of Shiprocket acquiring Pickrr. This would also give Shiprocket access to technology and team enabling full stack creation of ecommerce enablement.

The Q2 startup deal analysis report by Nasscom and PGA Labs said that the second half of 2022 will see further consolidation as established start-ups look for M&A opportunities at attractive valuation to increase market share.

M&A is not just an Indian startup ecosystem phenomenon, but it is also evident across Asia. According to KPMG’s Q2 2022 Venture Pulse report, “M&A activity could get a boost heading into Q3 '22 as investors and corporates look to take advantage of the lower valuation environment and tightening funding environment to find inorganic growth opportunities and opportunities to gain market share.”