Startup M&A activity improves in the first half of 2022. The momentum is expected to persist

The first quarter of 2022 witnessed 173 acquisitions within the Indian startup ecosystem, an increase from 98 in the first half of 2021 according to the data provided by the global startup platform Tracxn.

The number of startups that made acquisitions between January and December 2021 was at 244 as per Tracxn.

H1 2022 was also notable with regard to big-ticket deals, including Blinkit being purchased by Blinkit by Zomato for $569 million in an all-stock deal , which was announced in June 2022.

The data do don’t include acquisitions, mergers within the real estate industry construction of infrastructure, airlines automobile OEM steel and metal solar power and power plants.

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Industry experts predict that the second half of this year will see an increase in startups’ mergers and acquisitions, as growth rounds are scarce which is causing consolidation within late-stage companies and startups. that have strong balance sheets will be able to are able to identify the most profitable goals at the right prices.

“M&As and consolidation are going to be the mainstays of the year If I can refer to it as that. This is the direct result of the pressure on late-stage financing,” says Anup Jain the Managing Partner of Orios Venture Partners, a venture capital firm that was founded in the early stages. Orios Venture Partners.

He says, “In terms of focus investments in the sectors that saw growth in the outbreak, such as Edtech, D2C, and teleconsultation has decreased. Other areas like climate and sustainability, as well as electric mobility have seen an increase following the outbreak.”

Although startup investments experienced growth of 54% over the course of the year of $13.3 billion in 506 transactions during the H1 2022 compared to H1 2021 (with $8.6 billion spread across 327 deals) experts believe that consolidation in the latter stages will likely to begin as investors are more selective about the companies they will invest in a specific industry.

What makes 2022 different

Acquisitions and mergers in 2022 will be directed toward consolidating markets or creating market leadership instead of introducing new segments.

“Late-stage consolidation has always been the best strategy to create one entity that could unlock potential and avoid duplicates in the target market. We’ve seen it through PharmEasy-Medlife as well as ecommerce/taxi aggregators as well as other segments. This trend is accelerating due to the current state of funding and even to growth stage businesses,” Anup says.

Cash, stock, and mixed equity transactions will dominateas firms continue to operate in cash-conservation mode.

Zomato’s acquisition of the quick commerce firm Blinkit the biggest acquisition of H1 2022 it was an all-stock transaction.

“According to our research in 2021, almost two-thirds included stock and cash deals. This pace will be seen in 2022.” Vikram Chandrashekhar, Director, Bain & Company, shares with Business Headers

The deals in 2022 are different from 2021 when the likes of edtech companies with a large amount of funding companies like BYJU’S or Unacademy have made acquisitions through tuck-in in fields that aren’t their primary business.

The largest business conglomerates, such as Tata or Reliance have a tendency to invest in startups to increase their digital footprint , or to create an industry vertical in the digital space by utilizing non-organic channels.

“The present cycle could be referred to as a correctional phase. In the past, we’ve seen the bull run M&As in our terminology. These are typically companies that buy to expand faster. The capital was readily available, and the company buying it can always raise additional funds through the market, since the market rewards these players for their consolidation strategies,” says Sumir Verma director of Merisis Advisors, an the investment banking firm Merisis Advisors.

He also says that as startup unicorns transition to cash conservation Some deals may be encouraged by investors seeking to make sure their portfolio companies are aligned.

In June 2022 Tiger Global’s Pristyn Care provides a variety of multi-speciality surgery clinics, acquired healthtech startupLybrate that had received money through Tiger Global and Ratan Tata in 2015.

End-goal growth

Archit Gupta is the co-founder of Fintech SaaS business ClearTax that is now called Clear The company previously stated to Business Headers  it was Clear “..continued to search for additional assets”. “It is geared towards obtaining a high-quality early-stage team or an excellent product.”

The company has made two acquisitions this year, which include finance company for supply chains Xpedize as well as the compliance risk management firm CimplyFive..

If companies are looking to improve their competitiveness, M&A in 2022 is the best time to do it as any.

Experts believe that the acquisitions of startups in this market will continue to receive more interest from domestic businesses as well as startups, while the enterprises in the SaaS mobility, SaaS, and Fintech will experience more consolidation than other areas.

“Buyers with solid financials and ample cash in their books shouldn’t leave it outand be prepared with a plan of attack to make acquisitions. In the past, we’ve seen that Indian companies which consolidated and divested during the 2008 financial crisis beat their peers in earnings by a 2:1 ratio once the turmoil had ended,” says Vikram of Bain & Company.

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