Startups get a boost as Indian mergers and acquisitions top $22B and deal size fattens up

The startup pot in India has been simmering hot lately. Everyday there’s much news about innovations, new companies sprouting, and investors pumping in venture capital money. But so far, on the mergers and acquisition front, it’s been lukewarm. Quicker exits keep investors happy and the pot boiling. Uncertainty over how long it takes to see tangible returns have been giving many investors sleepless nights about a big, fat startup bubble in India.

Well, the proof of the pudding is here. In fiscal year 2014, India’s mergers and acquisitions across all industries registered an aggregate disclosed deal value of US$22.6 billion, an EY analysis report reveals. Although the data includes deals made in telecoms, oil and gas, and other sectors involving large companies, it also indicates a more conducive environment for Indian tech startups looking for exits.

The number of mergers and acquisition (M&A) transactions involving Indian companies in FY14 stood at 674, down by 20 percent against 843 deals seen in FY13. The deal value increased by 12 percent against the US$20.1 billion seen last year.

More significantly, average deal size reached US$99 million, a 59 percent leap from US$62 million a year earlier. This shows a maturing of the tech ecosystem, with more startups scaling up faster to attract bigger deals. In an earlier analysis, we had shown how poorly the size of an Indian tech deals measured up against those in more mature ecosystems like Silicon Valley and Israel. But this is changing.

Several sectors, including ecommerce, telecoms, and retail are seeing a wave of consolidation, and the trend is expected to continue over the next year.

The problem of discovery

Of the 674 M&A deals this year, 293 were cross-border transactions with an aggregate disclosed deal value of US$17.8 billion, which is nearly 20 percent higher in terms of value as compared to FY13. Most of them were inbound deals, for which the deal value stood at US$10.9 billion, up by 29 percent from US$8.4 billion in FY13.

This trend points to international players getting more confident about India’s long-term growth story. A new, stable government has given a boost to the economic outlook, and tech innovators are reaping the benefits by coming on the radar of global acquirers.

A couple of weeks back, internet giant Yahoo made its first Indian tech startup acquisition. It bought one-year-old Bookpad, which built an end-to-end document handling technology for the cloud. The size of the deal was not disclosed. Bookpad was part of software industry association NASSCOM’s Innotrek program, an initiative which showcases hand-picked Indian tech startups before global giants, and lets entrepreneurs explore opportunities for growth, mergers, and acquisitions.

Sanat Rao, who leads the M&A Connect initiative of iSPIRT, an industry thinktank, told Tech in Asia:

The number one problem for Indian companies is discovery. Most Indian startups don’t show up on the radar of the big US acquirers. For example, Autodesk found out that Qontext was an Indian company only at a late stage in the acquisition process.

That’s why M&A Connect attempts to help Indian startups become more visible around the world, and also help them improve their marketing and bring their accounting practices up to global standards.

High hopes of achche din