Inversely, offline companies are also looking to build their online distribution but usually cannot match the valuation expectations of sellers, barring a few exceptions,” said Pankaj Naik, executive director and co-head, digital and technology at Avendus Capital, a Mumbai-based investment banking firm.According to data from industry tracker Tracxn, acquisition activity peaked at 123 deals in the first quarter of 2022, compared to 70 deals in the first quarter of 2021. These include target companies that were founded after 2010.Interestingly, with several startups raising capital at record-high valuations, the pressure is high for companies to justify their newer valuations, as they plan future funding rounds.“I think the valuation multiples have zoomed for many companies last year, and startups are looking to play catch-up through acquisitions. If you have to raise your next round, you have to show growth, and startups are now resorting to inorganic growth through mergers to bulk up their propositions,” said an investment banker who has been assisting larger startups to acquire businesses on growth.Around 60% of the focus continues to be on acquisitions now rather than fundraising, the banker added.As a funding winter sets in globally, the smaller players struggling to raise cash and grow meaningfully are becoming easy acquisition targets for well-funded startups looking to fuel their growth ambitions inorganically.“The post-merger world can be hard. Many acquisitions in the early and growth stages can tend to derail the company, with the outcomes being not so exciting,” said Ashish Kashyap, founder and chief executive of wealth management company IndMoney. But obviously the advantage of a share-swap deal is that the company you are bringing in also has its ‘skin in the game’ and puts both entities on a common path,” said Kashyap of IndMoney said.While the focus of acquisitions this year have largely been towards new expansion, many acquisitions also focused on acqui-hiring for tech teams.“The other open secret is that engineering talent has been really hard to hire, and tuck-in acquisitions have been a great way to scale technical teams,” said Vaibhav Agarwal, partner, Lightspeed Venture Partners.

Source: Economic Times April 04, 2022 07:49 UTC