indian unicorns will continue to strengthen through acquisitions in mobile, marketplaces & data...
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2 Think Next Roundtable Report - India Technology Product M&A Industry Monitor
Summary • India had 190 Product M&A inbound & domes:c transac:ons totaling $2.3B from 2011-‐15 YTD
– Domes:c transac:ons accounted for 72% of overall M&A deals by volume – “Inbound” M&A transac:ons were predominantly in B2B soOware (53%), whereas the leading sector for domes:c M&A transac:ons was
Internet & Consumer and E-‐Commerce (60%) – The average transac:on size was $11.3M, far lower than that of Israel ($113M) and the US ($57M) – 2014 witnessed the highest number (61) of M&A transac:ons in the past 5 years
• 2014: The India Consumer Sector is coming of age – 300M+ internet users today (2nd Highest, India surpassed US last year!); 15-‐20M users transac:ng online – VC/PE investments in E-‐Commerce/Consumer Internet space saw 101 deals totaling to $4.2B in 2014. New-‐age and alterna:ve investors
(PE & Hedge funds) are rapidly buying into the India growth story; – Consolida:on in E-‐Commerce/Consumer Internet is picking up: >90% of deal volume and deal value during the 2014-‐Q115 :me period in
E-‐Commerce/Consumer Internet was domes:c in nature
• Discovery & Readiness con:nue to be challenges for M&A in India – Most Indian startups are s:ll not on the radar of the US companies for Business Partnerships and M&A – Several transac:ons fall apart due to lack of readiness and inexperience with the process itself
• Future Trends and Predic:ons – India’s large ‘Unicorns’ will aggressively pursue acquisi:ons to beef up key areas, including Mobile, AdTech, Data Science, Marketplaces ,
Merchant acquisi:ons, Payments and Logis:cs – Acqui-‐hires will con:nue due to shortage of iOS/Android engineers & Data Scien:sts
3 Think Next Roundtable Report - India Technology Product M&A Industry Monitor
VC/PE Funding is a strong source of Growth Capital for Indian Technology Product Companies
28 31 29 49
22
81 95
74
101
74
20 21
20
26
31
0
40
80
120
160
200
2011 2012 2013 2014 YTD 2015
# De
als
B2B SoOware Internet & Consumer / E-‐Commerce Mobility
99 143 171 377 248 555 603 808
4,209
1662 316 55
42
297
192
0
500
1000
1500
2000
2500
3000
3500
4000
4500
2011 2012 2013 2014 YTD 2015
USD
Mn
B2B SoOware Internet & Consumer / E-‐Commerce Mobility
India VC / PE Investments: Deal Value
India VC / PE Investments: Deal Volume § Investment in has grown by ~ between 2010-‐2014;.
§ was invested in this sector in 2014 alone, with the two main companies (Flipkart & Snapdeal) accoun:ng for > 50% of the Indian internet investment dollars
§ Investments in showing an upward trend
~$1,910 M ~$1,111 M ~$652 M
~$300 M ~$123 M ~$113 M
Marquee PE/VC Investments Between 2014 And Q1 2015
Source: Signal Hill analysis and research, Venture Intelligence, YTD as on March 31, 2015
4 Think Next Roundtable Report - India Technology Product M&A Industry Monitor
… With a fear Of missing out, Hedgies & PEs are funding ‘new’ Series B ($10-‐25mn) and Series C & D ($20-‐250m) onwards, fueling a frenzy in valua:ons
1 Year 1-‐2 Years
1-‐2 Years
1-‐2 Years
1-‐2 Years
0.5 Year
0.5-‐1 Year
0.5-‐1 Year
0.5-‐1 Year
0.5-‐1 Year
2x Money Raised in Half the Time
before
Currently
5 Think Next Roundtable Report - India Technology Product M&A Industry Monitor
New Age and Alterna:ve Investors are making a beeline to India…
The Early Risers With Long Term Commitment To Tech Inves]ng In India
Buoyant Market Condi]ons : Many Hedge Funds & Family Offices Buying Into India Internet & Sodware
DST Global
6 Think Next Roundtable Report - India Technology Product M&A Industry Monitor
M&A has picked up considerably in E-‐Commerce & Consumer Internet Space
Acquirer Target & Descrip]on Deal Value ($mn)
Freecharge* Online mobile recharge 400
AdIQuity Technologies Mobile Ad Network
NA
Taxi For Sure Mobile app for taxi bookings across ci:es in India
200
Babyoye Onlline retailer of kids and baby products
NA
Wishpicker Online giO shop
NA
Gaadi.com Online new and used car & bike portal
NA
Myntra Online fashion retailer
370
CouponDunia Online discount coupons aggregator
NA
ngpay Mobile payment plaporm
NA
Travelguru Online hotels and holidays booking website
15
Letsbuy Online electronics retailer
25
*Snapdeal / Freecharge transaction happened post Q1 2015 and is not included in the analysis on slides 11-14
7 Think Next Roundtable Report - India Technology Product M&A Industry Monitor
Global Technology Majors have started looking at India, mostly for Technology and Talent acquisi:ons
Acquirer Target & Descrip]on
Zipdial Mobile marke:ng and engagement plaporm
BookPad Online document crea:on and collabora:on soOware
Limle Eye Labs Mobile app analysis tools for app developers and testers
Dexetra Mobile app with Contextual Recommenda:ons
Talent Neuron Market Intelligence Tech Tools based on data-‐analy:cs
Impermium Cyber Security
KDK Sodware SoOware solu:ons for payroll processing, personal finance, and tax prepara:on and filing in India
Redbus Online bus :cke:ng website
8 Think Next Roundtable Report - India Technology Product M&A Industry Monitor
Overall M&A exit value of Indian Technology Product Companies is significantly below key Peers, and VC/PE’s have large Exit Backlogs…
Source: Signal Hill & iSPIRT analysis and research, Venture Intelligence, PwC, NVCA US
Technology Product VC/PE and M&A
2011-‐2014
VC / PE Investments – Volume
VC / PE Investments – Value
M&A -‐ Volume
M&A -‐ Value
M&A Value: VC / PE Value
Average M&A Deal Size
Product M&A -‐ Challenges and Bomlenecks con]nue to exist……
§ Limited sales trac:on in back yard (US, Europe) of SoOware / Internet majors; Most start-‐ups don’t show up on the radar of acquirers
1
§ Lack of listed SoOware / Internet Peers in India to benchmark against and sluggish & nascent SoOware / Internet IPO market in India
2
§ Low maturity levels in product management & marke:ng
§ Companies and entrepreneurs need to focus on building a globally differen:ated proposi:on and ensure global accoun:ng & governance standards to ignite M&A deal flow
3
4
§ Nascent local acquirer universe; “US / Global Acquirer” is required to create a block buster outcome
*only includes disclosed deal values. ^Slightly understated for US as the M&A value only includes disclosed deal values
9 Think Next Roundtable Report - India Technology Product M&A Industry Monitor
India Technology Product M&A : 2011 – YTD 2015
Product M&A Deal Volume (Cumula]ve) : 2011 – Q1 2015 Product M&A Deal Value (Cumula]ve) : 2011 – Q1 2015
29%
36%
14%
7%
14%
31%
31%
23%
5%
9%
-‐ Internet & Consumer accounted for 36% of deals in India and represented 31% of the overall deal value
-‐ Domes:c M&A transac:ons have been mostly in the Internet/Consumer and E-‐commerce space, whereas the inbound M&A deals have predominantly been in the B2B SoOware area
-‐ Volume of M&A in mobile has increased from 9% in 2010 -‐ Q1 2014 to 14% in 2011 -‐ Q1 2015 period
AdTech & Marke:ng Automa:on B2B SoOware Internet & Consumer E-‐Commerce Mobile
Source: Signal Hill & iSPIRT analysis and research, Venture Intelligence, YTD as on March 31, 2015
10 Think Next Roundtable Report - India Technology Product M&A Industry Monitor
Inbound and Domes]c Deal Volume Split by Sectors (Cumula]ve 2011 – YTD 2015)
Domes:c M&A Transac:ons accounted for 72% of overall Deals by Volume and 51% by Value..
53%
19%
4%
8%
17%
Inbound (Total 53 Deals)
20%
42%
18%
7%
13%
Domes]c (Total 137 Deals)
54% 31%
1% 9% 6%
Inbound (Total ~$1.12b)
10%
32%
44%
2% 12%
Domes]c (Total ~$1.15m)
Inbound and Domes]c Deal Value Split by Sectors (Cumula]ve 2011 – YTD 2015)
Ad.Tech & Marke:ng Automa:on B2B SoOware Internet & Consumer E-‐Commerce Mobile
Ad.Tech & Marke:ng Automa:on B2B SoOware Internet & Consumer E-‐Commerce Mobile
Source: Signal Hill & iSPIRT analysis and research, Venture Intelligence, YTD as on March 31, 2015
11 Think Next Roundtable Report - India Technology Product M&A Industry Monitor
10 14 9 19
3
8 10 18
26
6
5
9 3
4
5
4
6 3
1
3
4 6
11
3
0
10
20
30
40
50
60
70
2011 2012 2013 2014 Q1 2015
# De
als
B2B SoOware Internet & Consumer E-‐Commerce Ad.Tech & Marke:ng Automa:on Mobile
Product M&A Deal Volume Trend : 2011 – Q1 2015
13 11 10 18
1
17 32
29
43
16
0
10
20
30
40
50
60
70
2011 2012 2013 2014 Q1 2015
# De
als
Inbound Domes:c
Product M&A Deal Volume Trend : 2011 – Q1 2015
Product M&A Deal Volume Trend by Segment: 2011-‐ Q1 2015
-‐ 2014 witnessed highest product M&A ever, in terms of both volume & value of transac:ons
-‐ 67% of product M&A transac:ons in 2014
were domes:c and 33% were inbound
-‐ Internet & Consumer sector comprised 43% of
product M&A transac:ons volume in 2014, of which majority was domes:c
-‐ B2B SoOware followed Internet & Consumer
sector with 31% share in volume terms, of which majority was inbound
-‐ % Increase in transac:on volume between
2013 and 2014, by key subsectors:
§ Mobile: ~100%
§ B2B: >100%
§ I&C: ~44%
Source: Signal Hill & iSPIRT analysis and research, Venture Intelligence, YTD as on March 31, 2015
12 Think Next Roundtable Report - India Technology Product M&A Industry Monitor
Product M&A Deal Volume: Inbound & Domes:c Deep Dive (2011 – Q1 2015)
Product M&A Inbound Deal Volume Trend : 2011 – Q1 2015
Product M&A Domes]c Deal Volume Trend : 2011 – Q1 2015
Inbound M&A Volume in 2014 :
-‐ 61% transac:ons were in B2B SoOware sector, with Mobile and Internet &
Consumer sectors comprising 17% & 22% respec:vely
-‐ Almost 2x increase in inbound deals for B2B over 2013
Domes:c M&A Volume in 2014 :
-‐ 53% of the domes:c M&A transac:ons in
2014 were in the Internet & Consumer
sector, followed by B2B SoOware sector with a 19% share
-‐ Majority of these domes:c M&A were acquihires by larger E-‐commerce players
3 9
4 8
3
6
7 16
23
6
3
9 3
4
5 3
4 2
1
2
3 4
7
2
0
10
20
30
40
50
2011 2012 2013 2014 Q1 2015
# De
als
B2B SoOware Internet & Consumer E-‐Commerce Ad.Tech & Marke:ng Automa:on Mobile
7 5 5
11
2 3 2
3
2 1
2 1
1
1 2
4
1 0
4
8
12
16
20
2011 2012 2013 2014 Q1 2015
# De
als
B2B SoOware Internet & Consumer E-‐Commerce Ad.Tech & Marke:ng Automa:on Mobile
Source: Signal Hill & iSPIRT analysis and research, Venture Intelligence, YTD as on March 31, 2015
13
605
69
233 184
30
22
136
76
637
283
0
100
200
300
400
500
600
700
800
900
2011 2012 2013 2014 Q1 2015
USD
Mn
Inbound Domes:c
-‐ Of the $2.3B worth of M&A in 2011-‐Q1 2015, domes:c transac:ons comprise 51% whereas inbound transac:ons comprise the remaining 49%
-‐ Value of the product M&A transac:ons in 2014 increased over 2013 by 165%
-‐ Product M&A ac:vity in 2015 commenced on a high note with Q1 recording over
$313M in transac:onal value, which is approximately 38% of total M&A
transac:ons value in 2014
-‐ E-‐Commerce transac:ons shot up in
2014, increase from 3% in 2013 to 48% of total M&A value
Product M&A Deal Value Trend: 2011 – Q1 2015
Product M&A Deal Value Trend : 2011 – Q1 2015
Product M&A Deal Value Trend by Segment: 2011 – Q1 2015
48%
26% 39%
29%
1%
35%
4%
50%
13% 70%
2%
31%
3%
48%
13%
14%
11%
1% 1% 1%
28%
6% 9% 16%
0%
20%
40%
60%
80%
100%
2011 2012 2013 2014 Q1 2015
B2B SoOware Internet & Consumer E-‐Commerce Ad.Tech & Marke:ng Automa:on Mobile
Source: Signal Hill & iSPIRT analysis and research, Venture Intelligence, YTD as on March 31, 2015
14 Think Next Roundtable Report - India Technology Product M&A Industry Monitor
Product M&A Deal Value: Inbound & Domes:c Deep Dive (2011 – Q1 2015)
49% 64%
49%
81%
38% 4% 43%
14% 13%
32%
7% 5%
100%
0%
20%
40%
60%
80%
100%
2011 2012 2013 2014 Q1 2015 B2B SoOware Interenet & Consumer / E-‐Commerce Others
Es]mated Product M&A Inbound Deal Value Trend : 2011 – Q1 2015
Es]mated Product M&A Domes]c Deal Value Trend : 2011 – Q1 2015
Inbound M&A Value in 2014 : -‐ Out of $179M inbound M&A in 2014,
soOware was >80% which is a substan:al increase from 49% in 2014
-‐ Internet & Commerce / Ecommerce share dropped from 43% in 2013 to 14% in 2014
Domes:c M&A Value in 2014 : -‐ Domes:c M&A was dominated by Mobile
as a result of several small acquihires
-‐ Internet & consumer con:nued to dominate the value, a trend started in 2013
25% 7% 7% 14%
1%
41%
51%
84% 75% 92%
34% 42%
9% 11% 7%
0%
20%
40%
60%
80%
100%
2011 2012 2013 2014 Q1 2015
B2B SoOware Interenet & Consumer / E-‐Commerce Others
Source: Signal Hill & iSPIRT analysis and research, Venture Intelligence, YTD as on March 31, 2015
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Key Insights from MicrosoO Ventures’ Think Next Roundtable
1. The India Consumer Sector has come of age a) India has 300M+ internet users today, with 15-‐20M users transac:ng online. India surpassed US (~279M) in
Dec2014 in terms of number of internet users and is only second to China (~600M)
b) Amazon has said that India was fastest to a $1B GMV for them;
c) New investors such as Tiger, DST Global, SoObank are wri:ng large cheques
2. Discovery: con:nues to be challenge #1 for India product companies for M&A a) Most startups are s:ll not on the radar the big US acquirers for BD and eventual M&A
b) Most of the M&A transac:ons are very small and are domes:c (India for India transac:ons)
3. Entrepreneur Readiness emerging as a new focus area during the M&A process a) Most entrepreneurs haven’t been through an M&A before, and are unsure about how to handle the process
b) For every deal that goes through, there are 4-‐5 others that fail because of readiness/prepara:on issues
c) iSPIRT offers an “M&A hotline” to entrepreneurs to provide support and advice in the event of inbound M&A interest
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Key Insights from MicrosoO Ventures’ Think Next Roundtable (Cont’d)
4. India and China are different in the evolu:on of startups a) Due to protec:ve regula:ons by the Chinese government, several US companies (e.g.: YouTube and Facebook) cant
operate in China, so local companies like Baidu and Tencent can create mul:-‐Billion $ companies
b) Chinese companies historically have cultural and language barriers to expand interna:onally & hence usually focus on the domes:c market. On the other hand, India has 2 types of startups: India-‐for-‐India and India for global
c) Indian companies inherently have a big advantage over Chinese firms in addressing the global market
5. Acqui-‐hires (acquisi:ons with the sole intent of acquiring engineering talent) are extremely hot today a) Huge shortage of big data, analy:cs & android/iOS engineers in the valley;
b) Obviously, VC investors are less excited about acquihires & view them as a “last op:on”. On the other hand, founders view acquihires as a ‘badge of pedigree’
c) Bar is very high for startups – the en:re team will go through interviews during the process, and several startups fail this stage. An interna:onal team can expect to move to the US aOer the deal
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6. A new genera:on of entrepreneurs coming up in India a) Looking to build deep-‐tech companies based out of India, serving the global market
b) Very much vision-‐driven: want to change the world rather than “sell-‐out” early
c) These entrepreneurs are also likely to be angel investors and help other startups succeed, in parallel to running their own firm
7. Venture economics works differently for entrepreneurs, VCs and angel investors
a) First-‐:me entrepreneurs have a higher incen:ve to ‘cash out’ earlier, since they have invested a large part of their :me with limited salary
b) The VC has the opposite perspec:ve: sta:s:cs say that only 10% of VC investments are “home runs” and return the fund, and so the VC wants to stay longer in the companies that are poten:al winners
c) Angel investors should not expect to exit during series-‐A, and should plan to stay long term. Usually a larger investor comes in during series-‐C and will buy-‐out the angels shares in order to obtain a larger shareholding %
Key Insights from MicrosoO Ventures’ Think Next Roundtable (Cont’d)
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Future Trends & Predic:ons for 2015
1. The large Indian “Unicorns” will aggressively make strategic acquisi:ons to beef up key areas: focus areas include Mobile, Big Data / Analy:cs, Payments, AdTech, etc.
2. Technology Product M&A volumes and values will con:nue to increase rapidly. In B2B SoOware cross-‐border M&A
will con:nue to dominate transac:on volumes & values whereas in E-‐Commerce and Internet & Consumer domes:c M&A transac:ons will con:nue to dominate
3. Significant VC/PE funds will con:nue to flow into E-‐Commerce and Consumer Internet sectors, as new alterna:ve investors con:nue to enter the market. Key sectors will include the “unbundling and sharing” economy, as well as disrup:ve fintech
players (payments, crowdsourced financing etc)
4. Internet of Things [IOT] will receive significant interest from VCs and large acquirers: startups looking to take advantage of the ‘sensorifica:on’ of various sectors, including healthcare, enterprise, wearables and industries
5. Acqui-‐Hires will con:nue to be a cri:cal component for US and India companies: cri:cal areas include iOS, Android engineers and Machine Learning/Data Science experts
Signal Hill is a leading independent advisory bou:que serving the M&A and private capital raising needs of growth companies. Signal Hill’s experienced bankers provide deep domain exper:se and an unyielding commitment to clients in our sectors: Internet & Digital Media, Internet Infrastructure, Services and SoOware. With over 600 completed transac:ons and offices in Bal:more, Bangalore, Boston, Nashville, New York, Reston and San Francisco, Signal Hill leverages deep strategic industry and financial sponsor rela:onships to help our clients achieve Greater Outcomes®.
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iSPIRT Founda:on is an industry think-‐tank founded by key par:cipants and proponents of the Indian soOware product industry. iSPIRT enables a strong ecosystem, connects and guides soOware product entrepreneurs and helps catalyse business growth. It encourages buyers to improve performance by leveraging soOware products effec:vely. iSPIRT advises policy makers on interven:ons that can set the industry on a higher growth trajectory
For ques]ons, please contact:
Sanat Rao, Partner (M&A), iSPIRT [email protected]
Klaas Oskam Managing Director, Signal Hill India [email protected]
This document has been prepared by Signal Hill Capital Advisory India Private Limited (“SHI”) & iSPIRT for discussion purposes only. The informa:on and opinions contained in this document are derived from public and private sources which we believe to be reliable and accurate but which, without further inves:ga:on cannot be warranted as to their accuracy, completeness or correctness. This informa:on is supplied on the condi:on that SHI and any partner, employee or affiliate of SHI are not liable for any error or inaccuracy contained herein, whether negligently caused or otherwise, or for loss or damage suffered by any person due to such error, omission or inaccuracy as a result of such a supply. SHI and its affiliates are also not liable for any loss or damage howsoever caused by relying on the informa:on provided in this document. In par:cular any numbers, ini:al valua:ons and schedules contained in this document are preliminary and are for discussion purposes only and does not cons:tute an opinion.
MicrosoO Ventures, a global ini:a:ve by MicrosoO, is a strategic partner for promising startups around the world focused on business growth and development, industrial strength technology and beau:ful usable products. Build locally, scale globally. We help smart companies take flight.
Gayathri Sharma Head – Ecosystem Alliances, MicrosoO Ventures