30 May 2020
Indian Startups Gearing for Acquisitions and Mergers

    The Indian startup ecosystem is slated to witness tons of mergers and acquisitions over this year and the next. Stakeholders already claim that talks of bridge funding deals, acquisitions and strategic investments have been already initiated.

    Venture capitalists state that it is nothing but a natural dynamic whenever there is a slump in the economy even when there is no tangible reason. This dynamic can be enforced for four specific reasons- acqui-hiring companies which are running low on cash reserves, a consolidation move among companies, bridging the gaps in the digitisation of a company and a complete takeover of a smaller but prospective tech startup company by a giant tech company or a unicorn.

    Venture capitalists also claim that they predicted such a dynamic since the beginning of this year. The USA, the cradle of startup culture, is already witnessing rampant consolidation moves and within the next few months, they predict that the Indian startup ecosystem might witness the same.

    Most stakeholders committed to the Indian startup ecosystem state that consolidation moves will begin within the next few months with the companies who are low on cash reserves. The companies who failed to raise funds within the expected tenure will be the riper targets. Companies with low cash reserves must initiate a bridge fund or they face the threat of stressed buyouts.

    The FMCG sector is already witnessing such moves where the companies failed to meet their turnover projections due to the pandemic. Investors might coerce the companies to go into a strategic acquisition at lower rates so that their returns are secured.

    However, on the flip side, investors have pointed out that startups having lower runway valuations isn't a new factor. A recent survey conducted by Nasscom stated that there is more than 70 per cent of startups who are having just about three months worth of runway at the moment. Investors can now lowball companies to go into acquisitions which will ensure higher returns.

    The pandemic has, in a way, cleared the path for more investments, acquisitions and mergers. Market experts claim that the chances of securing a good deal have increased by leaps and bounds, thanks to the current situation.