This article is written by Christopher Manoharan, pursuing a Diploma in M&A, Institutional Finance and Investment Laws (including PE and VC transactions) from LawSikho.
Table of Contents
Introduction
Gone are the days when companies believed in organic growth by reintroducing their profits into the capital of their own company. Mergers and Acquisitions are today seen as a catalyst for growth.
Before we proceed to understand how Mergers and Acquisitions (M&A) work, a few clarifications are in order.
M&A refers to the process of consolidating companies or their assets. The terms merger and acquisition are often used interchangeably, but actually have different meanings.
A merger occurs when two companies agree to consolidate into a new entity. For instance, Company A and Company B agree to come together to create a new entity, Company C.
In the Indian context a good example is the merger of Vodafone India with Idea Cellular, to form a new entity named Vodafone Idea Limited. Vodafone currently holds a 45.1% stake in the combined entity and Aditya Birla Group holds a 26% stake.
An acquisition is a process whereby an existing company purchases and assumes ownership over another firm or asset. For instance, Company A acquires Company B and the two companies continue to operate as an existing entity, Company A.
Notable mergers and acquisitions of the last decade
Let’s discuss here some of the important stories of the business world in the last two decades:
Ebix acquires Yatra
Ebix, after acquiring ItzCash for $124 Mn in 2017, made another foray into the deal market by acquiring Indian online travel booking company Yatra through a merger deal for a value of $337.8 Mn. The company hopes to strengthen its position in the Indian hotel and flight ticketing market through this deal.
In a statement the company disclosed a per share value of $4.90 per Yatra’s share, resulting in an enterprise value of $337.8 Mn, the Ebix collar price being $59 per share. A net equity value of $239 Mn was arrived at post adjustment for indebtedness, working capital, and warrants to be converted and the minimum cash requirement to be deployed.
Pine Labs acquires Qwikcilver
Pine Labs, the online retail payments platform acquired Bengaluru-based digital gift card firm Qwikcilver Solutions for $110 Mn in March 2019. Post the acquisition, Kumar Sudarsan, who was the cofounder and CEO of Qwikcilver, moved into the leadership team of Pine Labs.
The strengths of Pine Labs’ in being merchant-focused and that of Qwikcilver being a brand-centric software-as-a-service (SaaS) technology platform, will complement each other to extend their Indian and international market reach.
OYO acquires Innov8
In March 2019, Gurugram-based coworking startup Innov8 for INR 220 Cr ($31.84 Mn), was acquired by the hospitality chain OYO in an all-cash deal. The founders and investors of Innov8 have taken an exit.
Ritesh Malik the ex-founder of Innov8 will however continue to drive the company’s expansion in his new avatar in the leadership team of OYO. Innov8 will continue to operate independently under the larger OYO umbrella.
Innov8 which was founded in 2015 has seen a series of funding, collecting over $4 Mn in funding from investors such as Rajan Anandan (VP India and Southeast Asia, Google), LetsVenture, Venture Catalysts, Credence Family Office, Vijay Shekhar Sharma (founder and CEO, Paytm), Girish Mathrubootham (founder and CEO, Freshdesk) among others.
Sachin Bansal acquires CRIDS
Standing out as one of the largest deals the year 2019 has seen, is former Flipkart CEO Sachin Bansal’s acquisition of Chaitanya Rural Intermediation Development Services Private Limited (CRIDS), a non-banking finance company (NBFC).
Bansal took over as CEO of CRIDS and invested INR 739 Cr ($104 Mn). In a media statement, Bansal said that this acquisition is his entry into the financial services world. Mr Bansal in a statement lauded the founders of the company for having built a great company that caters to the much needed problem of financial inclusiveness and provides financial support to the marginalized and ignored population that is left out of the formal market.
CRIDS is currently carrying out its operations in Jharkhand, Maharashtra, Karnataka, Bihar, and Uttar Pradesh. Expanding to the other states will be a major thrust area of CRIDS as a part of the post-acquisition activities.
Qoo10 Pte Ltd acquires ShopClues
Walmart-Flipkart was a trendsetter in the Indian startup ecosystem last year. Following this trend was the acquisition of ShopClues by Singapore-based Qoo10 Pte Ltd in a stock deal.
ShopClues which has more than 700K small and micro-merchants through this collaboration, will be able to reach customers in Qoo10’s Southeast Asian markets. Qoo10’s merchants and cross border logistics business will as a result get access to the Indian market as mentioned in the company’s statement.
Quikr acquires Zefo
Quikr by acquiring Zefo scaled up its pre-owned goods and services verticle. Quikr founder and CEO Pranay Chulet in a statement said that the acquisition will enable the company to offer at competitive prices, a much broader selection of products. The other advantage flowing from this acquisition, of course, would be the offering of Zefo’s products to Quickr’s large customer base.
Founded in 2015, Zefo not only sells but also believes in offering end-to-end services to its customers which include product refurbishment and repairs of its sold products. Further, it strives to maintain certain standard processes in order to ensure customer satisfaction.
Paytm acquires NightStay
In January 2019, the last-minute hotel booking app, NightStay was acquired for an undisclosed amount by Paytm. Before the acquisition, there were secondary sources in the market which indicated that Paytm may acquire NightStay for $20 Mn (INR 142 Cr).
Nightstay offers flexible options to provide flash accessibility on its app and is currently available in Delhi, Mumbai, Bengaluru, Goa, Chennai and Hyderabad. The company had a previous round of funding in 2015 of USD 500k from BedRock Ventures and angel investors Rajesh Sawhney and Shailesh Vickram Singh, a partner at SeedFund.
OLX Group acquires Aasaanjobs
OLX has strengthened its presence in the rapidly growing blue collar job market in India with the acquisition of Aasaanjobs for an undisclosed sum. OLX as a part of its expansion strategy into the blue collar job market intends to use the acquired assets to strengthen its job verticals.
OLX has since its launch in January 2008 expanded its vertical with an acquisition-led strategy. Starting from 2015, the company has so far done three acquisitions with one acquisition in 2019. The company previously acquired Sulit.com.ph and Torg.Uz.
Elara Technologies acquires FastFox
Singapore-based digital real estate marketing and transactions services company, Elara Technologies in April 2019, acquired Gurugram-based rental brokerage startup FastFox for INR 100 Cr ($14 Mn).
ClearTax Acquires dose FM
Mumbai-based audio streaming platform Dose FM In October 2019, was acquired by the fintech startup ClearTax a for an undisclosed amount. The team will be building mobile focussed products for simplifying the financial lives of businesses and individuals through this acquisition.
Printo acquires Inkmonk
The Bengaluru-based printing retail startup Printo acquired custom online printing marketplace Inkmonk In May 2019, for an undisclosed amount. The founders of Inkmonk will be joining the leadership team of Printo’s through this acquisition.
Medlife acquires Myra
Medlife, the Bengaluru-based epharmacy startup In May 2019, acquired medicine delivery startup Myra Medicines for an undisclosed amount. Medlife through this acquisition, will be able to accrue profits and support its pharmacy business. Medlife will further be in a position to consolidate and improve the delivery of medicines and extend it’s reach to more Indian cities.
BYJU’s acquisitions
Earlier in 2020, BYJU’S, Think & Learn Pvt Ltd which is the world’s highest-valued edtech company, also became the biggest acquirer in the Indian edtech sector with five acquisitions. Earlier in 2020, BYJU’S acquired Whitehat Education Technology Private Limited’s online coding platform WhiteHatJr for $300 Mn, making it the biggest acquisition deal in the Indian edtech sector till date.
Some notable mergers and acquisitions
Three important considerations should be taken into account post merger or acquisition
- The company must be willing to take timely risks and make the necessary investments in order to benefit fully from the merger so that the Industry takes notice of the company in its more serious avatar. The clients will also sit up and take notice of the changes made and start assessing whether these changes are going to be beneficial to them or not.
- To reduce and diversify risk, multiple bets must be made, in order to narrow down to the one that will prove fruitful. This will help the company identify its verticals of success and concentrate on its growth.
- The management of the acquiring or merging firm must place great value in its ability to be resilient, patient and be able to adapt to the change in a dynamic and metamorphosing business environment.
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