An analysis of the M&A data since January 2020 shows that TCS has acquired only two companies — Pramerica and Postbank Systems. Infosys bought five startups and Wipro picked up nine. In the same period, Byju’s acquired 10 startups, Unacademy bought nine and Pharmeasy cracked 2 big deals including one with a listed company.
Most other unicorns bought one to two startups on an average, shows data compiled from Crunchbase.
The trend of VC-backed startups buying VC-backed startups is prevalent in the US as well. Between 2015 and 2021, such acquisitions have more than doubled. In fact, the number of deals in 2021 touched an all-time high of 268 in July itself.
In India, edtech startups have taken the lead in acquisitions, courtesy the pandemic. Byju’s and Unacademy, which got a boost as pandemic forced learning to go online, went on an acquisition spree in 2020, after raising multiple rounds of funding last year. They continue to scout for strategic buyouts.
Data by Venture Intelligence shows that edtech firms raised $2.1 billion in 2020 against $426 million in 2019. More than half of the money went to Byju’s which acquired Whitehat Jr, Toppr and Aakash Education Services in quick succession.
Going beyond smaller startups
Indian unicorns have upped their acquisition game this year. PharmEasy’s acquisition of 25-year-old listed diagnostic company Thyrocare, Byju’s deal with Aakash, BharatPe-PMC Bank deal and Groww acquiring IndiaBulls AMC have established a new trend in the M&A space.
So, why are new age tech startups snapping up non-tech businesses? Well, the answer is a mix of several factors. The top among them is the urge to demonstrate revenue growth along with scale.
Apart from established revenue streams, traditional businesses have two more attraction points — proven offline business and a tangible bricks and mortar platform.
Do acquisitions always deliver?
Not really. Acquisitions have delivered big losses for some startups. Snapdeal’s acquisition of payments firm FreeCharge is a prime example. The startup bought Freecharge for over $400 million in 2015 and had to ultimately sell it for just $60 million two years later to fund operations.
There are positive examples as well. For instance, acquisitions of Myntra and PhonePe by Flipakart, Naspers’ buy of RedBus and Naspers’ buy of RedBus have delivered windfall returns for the acquirers.
Roadblocks in the path to acquisition
Startup acquisitions aren’t as easy as buying groceries. It takes much more than will and money to buy a business.
According to reports, most unicorns vet dozens of startups each year but find it difficult to get what they are looking for at the right price.
PolicyBazaar recently told a media platform that they vet 15-20 companies every month but find ‘nothing worth buying’. Another reason mentioned by the company was ‘inflated’ valuation.
The fear of antitrust regulator CII becomes a key dissuading factor in the merger of two big rivals in any industry.