Startups combine forces to tide over tough times

(This story originally appeared in on Aug 14, 2020)

CHENNAI: Hit by the pandemic and its financial impact, startups across sectors are looking to battle the downturn by combining forces leading to a spike in strategic mergers and acquisitions in the ecosystem.

11 mergers & acquisitions (M&A) deals among VC-backed startups valuing $311 million have already been recorded in 2020 (as of August 7) compared to 15 deals totaling $116 million in 2019, data from Venture Intelligence shows.

A review of the deals shows that well-funded players, especially in edtech and health tech, have been particularly active to ramp up capabilities through acqui-hires and strategic mergers.

Arun Natarajan, founder, Venture Intelligence says startups, across sectors, are looking to leverage synergies to tide over difficult times as fresh capital raises have almost come to a halt.

“This is just the beginning of the trend, and we will see more M&As in the coming months, and entities like Jio will play a key role in this,” he said. In the booming edtech space, Byju’s acquisition of White Hat Jr in an all-cash deal of $300 million led the pack. Unacademy has also made a strategic investment of $5 million in Mastree, and acquired medical entrance exam prep portal PrepLadder for around $50 million.

Doctor consultation app DocsApp’s merger with Bengaluru-based MediBuddy to expand its reach and enter new service categories was a key M&A in health tech.

Two of the top players in the used cars marketplace Spinny and Truebil also joined hands earlier this month.

In the ailing travel sector, SpiceJet acqui-hired Bengaluru-based travel tech startup Travenues. Investors and industry trackers TOI spoke to say M&A action among startups has been hectic in the last few months.

“While M&A deals are typically considered a sign of distress during financial crisis situations and the trend generally settles within six to nine months, the crisis brought on by Covid-19 is expected to be deeper,” Arpit Agarwal, part of the investment team at Blume Ventures, said.

Passion Connect -a platform incubated by Blume to help portfolio companies with HR services along with acqui-hiring support- has seen increased interest among both supply and demand side companies who are looking to strike deals, he added.

In badly hit sectors like fintech, travel, and others, M&A action is driven by a choice between consolidating or perishing as small and mid-size startups find it difficult sustain the high cash burn, Ankur Pahwa, partner and national lead – E-commerce and consumer internet, EY India, said.

While most deals in the first half of the year have been in the nature of strategic partnerships and ‘build vs buy’ decisions, the distressed M&As are set to flow in the upcoming quarters of the year, he added.

Startups combine forces to tide over tough times Startups combine forces to tide over tough times Reviewed by TechCO on 8/16/2020 Rating: 5

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