Bangalore, India – June 2, 2015: With Mergers and Acquisitions (M&A) totaling $2.27bn since Jan 2011, technology majors as well as large Indian ‘Unicorns’ are likely to continue acquiring Indian Technology product startups to fill technology gaps as well as talent requirements. This was among the key trends to emerge from the Think Next Roundtable Report – 2015 India technology Product M&A Industry Monitor Report released by iSPIRT, India’s software products think tank, technology focused M&A advisory boutique Signal Hill and Microsoft Ventures.
This M&A report is the result of the Think Next Round Table hosted by Microsoft Ventures & iSPIRT – M&A In India- Some small steps, some giant leaps.
The M&A Product Monitor report shows that since 2011, there have been 190 M&A transactions involving Indian technology product companies, with a total estimated transaction value of $2.27B. Domestic transactions account for the lion share (72%) of the M&A activity by volume. However in value terms, the 53 ‘inbound’ M&A transactions account for ~50% of the estimated transaction value, due to a higher average deal size ($21.1M vs $8.4M). The average deal size stands at $11.3mn, lower than that of mature startup ecosystems such as Israel ($113mn) and the US ($57mn).
“The M&A space, despite growing at 56% YoY (2013-14) had been relying on anecdotal information to make business decisions. The Think Next Roundtable Report has now become the handbook to the investors and corporates and regularly provides them with data and insights into M&A space. We are hoping this clarity will enable businesses, entrepreneurs and investors alike to invest in taking Indian entrepreneurship to the next level. It is great to see the role Microsoft Ventures & iSPIRT is playing in growing the startup ecosystem” said Ravi Narayan, Director of Microsoft Ventures, India.
“India tech product startups face two challenges: Discovery & Readiness. Most startups are not on the radar of the large global tech companies either for business engagements or investment, which in turn reduces their chances of going through an acquisition. iSPIRT’s M&A Connect Program is solving this problem via targeted connects between US and Indian tech companies with specific technology gaps, and exciting India startups who can fill these gaps ” said Sanat Rao, Partner, M&A, iSPIRT.
VC/PE investments in the e-commerce and consumer internet markets have grown 38x from 2010-2014, with $4.2B invested in in this space 2014 alone. With a fear of missing out, hedge funds & private equity funds are investing in ‘new’ Series B ($10-25mn) and Series C & D ($20-250m) onwards, fueling a frenzy in valuations. Prior to 2014, it would take startups at least 1-2 years to raise series B and C funds. In the last 12 months, this has dropped by half with companies reaching this mark in less than a year.
“On the Technology Product M&A side there is clear trend emerging where in B2B Software the majority of the transactions and transaction values is cross-border in nature, however in Internet & Consumer and E-Commerce domestic transactions account for the bulk of the transaction value and volume. With the emergence of Indian Internet & E-Commerce unicorns we foresee this trend to continue. On the VC/PE investment side we expect continued strong momentum across already favored sectors such as Internet & Consumer, E-Commerce and B2B Software as well as sunrise sectors such as IoT” said Klaas Oskam, Managing Director, Signal Hill.
The report indicates that a generation of entrepreneurs is coming up in India, looking to build deep-tech companies in the country. Where B2B software companies are aiming at serving the global market, the internet & e-commerce businesses are focusing on India. These are vision-driven and are focused on creating a market differentiator rather than “selling-out” early. These entrepreneurs are also likely to be angel investors and help other startups succeed, in parallel to running their own firms.
Finally, the report makes the following predictions:
- The large Indian “Unicorns” will aggressively make strategic acquisitions to enhance market dominance and strengthen strategic growth areas such as: mobile, data & analytics and payments etc.
- Technology product M&A volumes and values will continue to increase rapidly. In B2B Software cross-border M&A will continue to dominate transaction volumes and values whereas in E-Commerce and Internet & Consumer domestic M&A transactions will continue to dominate
- Significant VC/PE funds will continue to flow into E-Commerce and Consumer Internet sectors, as new alternative investors continue to enter the market.
- Internet of Things [IOT] will receive significant interest from VCs and large acquirers: sectors include healthcare, enterprise, wearables and industries
- Acqui-Hires will continue to be a critical focus for US and India companies: areas include iOS, Android engineers and Machine Learning/Data Science experts
iSPIRT Foundation is an industry think-tank focused on the Software Product Industry, founded by entrepreneurs and key ecosystem proponents. We connect and guide software product entrepreneurs, and encourage buyers to improve performance by leveraging software products effectively. We advise policy makers on interventions that can set the industry on a higher growth trajectory. For more information, visit www.ispirt.in
About Signal Hill
Signal Hill is a leading independent advisory boutique serving the M&A and private capital raising needs of growth companies. Signal Hill’s experienced bankers provide deep domain expertise and an unyielding commitment to clients in our sectors: Software, Internet & Digital Media, Internet Infrastructure and Services. With over 600 completed transactions and offices in Baltimore, Bangalore, Boston, Mumbai, Nashville, New York, Reston and San Francisco, Signal Hill leverages deep strategic industry and financial sponsor relationships to help our clients achieve Greater Outcomes®. For more information visit www.signalhill.com.
About Microsoft Ventures
Microsoft Ventures is a strategic partner for promising startups around the world focused on business growth and development, industrial strength technology and beautiful usable products. Build locally, scale globally. We help smart companies take flight. More at http://www.microsoftventures.com/