Finally, the Gurgaon-based company chose acquisition by Aon in an all-cash deal. “We wanted to go global. If we wanted to reach that end goal faster, we had to join a bigger firm,” says Grover. Overnight, CoCubes had access to 10,000 companies through Aon’s resources.
As innovation becomes key to the way business is done, legacy firms are taking the merger and acquisition (M&A) route to leverage the latest technology from smaller startups. According to analytics firm Tracxn, almost half of the 45 M&A deals between a tech startup and a larger offline player happened in or after 2015.
This reflects a global trend: In 2016, US retailer Walmart purchased online store Jet.com for $3 billion, while General Electric’s software division bought ServiceMax, a cloud-based provider of software used in inventory and workforce management, for $915 million. Automakers such as General Motors and Daimler have taken large stakes in ride-sharing applications, including Lyft and Hailo. The number of technology companies sold to nontech companies in 2016 was more than those sold to tech enterprises, The New York Times reported in January this year citing data compiled by Bloomberg.
In India too, large organisations are seeing the benefits of engaging with lean and agile startups that can bring innovation faster with shorter turnaround periods for solutions. “Acquisitions are happening for niche technology that a large organisation with legacy systems would take ages to build on its own, or for rele vant tech talent that can work on cuttingedge solutions with in-house expertise, or to make inroads into new market opportunities,” says K S Viswanathan, vicepresident, Nasscom.
Nasscom has started a programme to connect large enterprises with emerging product tech companies in India. Over 600 B2B product tech startups and 32 large enterprises, including Hindustan Unilever and banks like ICICI, HDFC and Axis, are part of the programme.
Finding the right partners
Fino Paytech, a financial technology company founded in 2006 in Mumbai with plans to start its own payments bank, is a startup that has learnt the value of partnerships with larger non-tech companies. (BPCL) picked up a 21 per cent stake in Fino Paytech for Rs 250 crore in July 2016. uses Fino Paytech’s digital solutions to simplify payments for customers, while Fino leverages BPCL’s network of outlets in rural and urban areas to facilitate banking access for customers. Earlier this year, ICICI Prudential Life Insurance and ICICI Lombard acquired a 10 per cent stake in Fino Paytech for Rs 118 crore.
Fino Paytech founder Rishi Gupta says partnerships are the only way forward. “We have partnered with a lot of firms and have always been the smaller partner.Big non-tech companies need to build a scalable model but costs are enormous if they get down to building their own technology stack,” he says.
Mohan Kumar, partner at Norwest Venture Partners, says companies scout for startups to acquire through in-house accelerators. “Non-tech companies have started setting up incubators and accelerators to find startups working on tech that will benefit them, like Target for retail, SwissRe for insurance and Wells Fargo for banking. These have five or six companies that they mentor actively at any point in time. For a startup, this is very valuable since they have access to domain knowledge and key people. The company benefits by having access to latest technology and entrepreneurs who can direct energy towards solving their key problems,” says Kumar.
Good for growth
Forty-year-old healthcare giant Piramal Enterprises, which acquired health analytics company Searchlight Health two years ago, has a corporate development group in Boston to look at early-stage companies. “The two businesses (Piramal and Searchlight) collaborate in areas including creation of analytic tools, capturing data regarding the Indian healthcare system and creating new solutions for client needs. Searchlight Health brings extraordinary technology and engineering skills to Piramal,” says Jonathan Sandler, CEO, decision resources group, which is part of Piramal Enterprises.
For Godrej Nature’s Basket, the food store chain owned by the Godrej Group, the acquisition of online grocery store Ekstop helped them grow their business. “With the acquisition of Ekstop, we have seamlessly integrated our own web presence with the new platform and made the offering for consumers far more robust and convenient. Ekstop’s technical capabilities have given us the technological edge adding significant value to our online business,” says Avani Davda, Managing Director, Godrej Nature’s Basket.
There are challenges to working with legacy companies, especially for startups that are used to quick decision-making and working with smaller teams. “Business processes are definitely longer [in a legacy company]. A solution first has to be put together on paper and sometimes many people are involved,” says Fino Paytech’s Gupta. Sometimes decision-making takes several months and that becomes frustrating, he says.
“When you are building technology, it has to be fast. It was an issue earlier, when projects would be delayed. Now, non-fintech players have realised that they need to be quick,” Gupta says. “They are open to understanding and moving quickly.”
Source: The Economic Times