Indian start-ups vying for global tech acquirers' attention

BANGALORE, INDIA: The first release of iSPIRT M&A monitor shows that since 2010, there have been 159 M&A transactions involving Indian Technology Product companies, with a total estimated transaction value of $1.78B. Domestic transactions account for the lion share (70 percent) of the M&A activity by volume. However in value terms, the 48 inbound M&A transactions account for 63 percent of the estimated M&A transaction value, due to a higher average deal size ($23.3m versus $6.0m).

In particular, the B2B Software segment accounted for 56 percent of all inbound M&A transactions with foreign players (mostly US & European) acquiring Indian Software companies. On the flip side, Ecommerce and Internet segments (83 percent of all transactions by value) dominated domestic M&A, with Naspers' acquisition of Redbus being the exception to the rule.

"In the Silicon Valley, technology M&A exits provide liquidity to all the stakeholders in the eco-system and help enable the next generation of tech startups. For the Indian product startup eco-system to flourish, it is critical to us to drive up the level of Technology Product M&A transactions", said Sanat Rao, who leads iSPIRT's M&A Connect Program, an initiative dedicated to facilitating and expediting the cross-border M&A process for Indian software product companies.

Whilst it is encouraging to see the increasing trend in overall Technology Product M&A deal volumes and values in India, the Indian M&A eco-system is still in the early stages of its evolution compared to that of the US and Israel. For instance, VC/PEs investment in Israel from 2010-13 was half (~$1.5B) that of India (~$3B), but the total Technology Product M&A deal values in Israel during this period was more than six times the M&A transaction value seen in India, mainly driven by a much higher (~$100M versus ~$11M) average M&A transaction size in Israel.

"Obviously part of the reason for the gap in Indian M&A deal value is that only in recent years VC/PE investment levels in Indian Technology Product companies have started to pick-up rapidly. Hence a large portion of the VC/PE backed Technology Product companies in India are still part of a growing "inventory" of companies that is likely to reach the scale that will put them on the radar screen of strategic acquirers," said Klaas Oskam, MD and India head of Signal Hill. This rapidly growing "inventory" of exit ready companies leads us to predict that Indian Technology Product M&A deal volumes and values are bound to increase significantly over the coming years.

The Indian Technology industry has over the past two decades been dominated by IT Services players. However, the last five years have seen a distinct increase in the number of technology entrepreneurs that have focused on building Technology Product (i.e. software, internet and e-commerce, mobile product etc.) based businesses from India. For instance, according to leading research and advisory firm Zinnov, there are more than 3,700 software product companies in India today addressing both the enterprise and consumer segments.

"Indian Technology Product M&A deal values are still low in comparison to Israel. Key reasons for this include: Israel has a more evolved M&A eco-system with many serial entrepreneurs who are better at spotting technology gaps, building a tech product company and preparing for M&A. Furthermore in comparison to Israel, Indian Technology Product companies continue to face a discovery problem amongst the global technology acquirers. It is these type of discovery issues that iSPIRT through its M&A connect program is starting to address", said Sharad Sharma, iSPIRT founders circle member.