Last week, six-year-old PharmEasy announced that it is investigating Thyrocare, 26. Earlier this month, three-year-old BharatPe and its partner were selected by the RBI to acquire 37-year-old Punjab and Maharashtra Co-operative (PMC) Bank. Investment bankers expect these combinations to continue as more such ‘buy-big’ deals will be announced in the coming months.
So, what’s driving these Davids to strike out on Goliath-sized acquisitions? “Youth are ambitious and private capitals are supporting them,” said an industry watcher. softbank, Tiger Global, sequoia, process And others like him from the world of private equity are pouring millions of dollars into these young companies, providing them with enough ammunition for big ticket purchases.
For example, PharmEasy has received over $900 million in external funding since it was founded in 2015. It is buying 66% of Thyrocare from promoters for $600 million. It is also making an open offer of $240 million to Thyrocare’s public shareholders for an additional 26%, but this expense will be to the extent of shares acquired through the open offer.
“There are several factors at play, including the need for digital players to build physical infrastructure and presence, issues related to generational succession, access to funds from global investors and, in some cases, the crisis among some ‘old economy’ players.” The situation is involved.” Ravi Kapoor, Head (Corporate and Investment Banking) Citi India said.
The age of the founding team (many startups are founded by young entrepreneurs), their bold and out-of-the-box approach, agile decision making and their body of knowledge are also important factors supporting this trend. “The main difference is the speed with which some so-called new-age companies can move, which is much faster than traditional M&A,” Kapoor said. The PharmEasy-Thyrocare deal was done and signed in 29 days (less than a month).
Rajat Ranjan, Executive Director, Kotak Mahindra Capital said, “Since startups have a disruptive DNA, they are targeting established existing companies to transform the industries they are in. This is their broad vision – the ecology of an industry. Not looking at individual parts of the system but its entirety. – This is driving them to make big bets.”
Both Citi and Kotak have been involved in several interactions in the emerging M&A space, driven by technology-enabled startups. For Gen Alpha companies, these large acquisitions are helping to accelerate growth, upgrade capabilities and provide access to experienced management.
The head of a large foreign private equity fund said, while these young companies have a first mover advantage in online, they are realizing they just can’t be there. They need to be ‘physical’. “You’ll see more consolidation in the online-to-offline combination in medical, payments and retail,” he said. His fund has backed over a dozen unicorns (valued at over $1 billion) in India and some of them are pursuing large M&A.
India’s trend is mirroring what has played out in the US, where new age companies bought old ventures. Ranjan said established companies are also ready to sell startups as they feel it is better to board the train going into the future. For David, the purchase of Goliath elevates him to the big leagues in terms of physical infrastructure.
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