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Mergers and acquisitions to rise post Covid pandemic

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Mergers and acquisitions to rise post Covid pandemic

India’s startup sector may see a huge rise in mergers and acquisitions in the next 3-6 months. This can be anticipated as investors and companies expect a year of decreasing revenue and capital. This is caused by the COVID-19 pandemic as the Indian economy is in lockdown. According to investors, bankers and founders, buyouts will mostly take place in the Indian consumer retail, financial and internet sectors.

A lot of acqui-hires, distress sales and stock-led deals are expected to be completed. Bankers have stated that deals are now being accelerated. This was not possible 3 months ago. Venture capital investors have consolidation high up in their wish-list as they want to reduce portfolios. This wish has resulted due to these investors failing to raise money on their own from Limited Partners.

 

Impact of COVID-19:

The co head of digital and technology at Avendus Capital Mr. Karan Sharma stated that this pandemic is an unknown event. But this event will motivate both the entrepreneurs and Venture Capitalists to be a lot more creative and open. The current events have accelerated some of the conversations of mergers and acquisitions. These talks could have developed 2-3 years in the future. But this pandemic has proven to be a catalyst.

The dealmakers have stated that mergers and acquisitions transactions will rise. Investors have been urging portfolio companies to take measures foe extension of capital for atleast 18 months. Consumer facing businesses and high cash-burn entrepreneurs are urged to look for possible openings to merge.

 

Need for Mergers and Acquisitions:

In the April-June quarter, several companies may have zero revenue due to this pandemic. They will need to cover their costs. Fund raising is also postponed and will take more time to complete. Therefore, it makes more sense to merger. It is better to survive and grow rather than competing for the same capital and consumers. The general agreement is the financial services in the lending space are the primary targets for takeovers. Banks may try to acquire assets from fintech or non-fintech de-funded NBFC’s as they look to increase their tech stack. Currently, these assets are available at a discount.

 

Rise in the startup ecosystem:

Traders expect 55% of the Indian startup sector to have a money runaway for more than 11 months. Consolidation within startups have been on the rise in the past two years. Transactions worth $4.9 billion were recorded in the year 2018 and 2019. A total of 259 offers were noted in this two years. This year 27 offers worth $215 million was recorded.

 

 

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