Technology M&A Monitor - India 2014

India Technology Product M&A

Industry Monitor

June 2015

2Think Next Roundtable Report - India Technology Product M&A Industry Monitor

Summary

• India had 190 Product M&A inbound & domestic transactions totaling $2.3B from 2011-15 YTD– Domestic transactions accounted for 72% of overall M&A deals by volume

– “Inbound” M&A transactions were predominantly in B2B software (53%), whereas the leading sector for domestic M&A transactions was

Internet & Consumer and E-Commerce (60%)

– The average transaction size was $11.3M, far lower than that of Israel ($113M) and the US ($57M)

– 2014 witnessed the highest number (61) of M&A transactions 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 transacting online

– VC/PE investments in E-Commerce/Consumer Internet space saw 101 deals totaling to $4.2B in 2014. New-age and alternative investors

(PE & Hedge funds) are rapidly buying into the India growth story;

– Consolidation in E-Commerce/Consumer Internet is picking up: >90% of deal volume and deal value during the 2014-Q115 time period in

E-Commerce/Consumer Internet was domestic in nature

• Discovery & Readiness continue to be challenges for M&A in India– Most Indian startups are still not on the radar of the US companies for Business Partnerships and M&A

– Several transactions fall apart due to lack of readiness and inexperience with the process itself

• Future Trends and Predictions– India’s large ‘Unicorns’ will aggressively pursue acquisitions to beef up key areas, including Mobile, AdTech, Data Science, Marketplaces ,

Merchant acquisitions, Payments and Logistics

– Acqui-hires will continue due to shortage of iOS/Android engineers & Data Scientists


VC/PE Funding is a strong source of Growth Capital for Indian Technology Product Companies

28 31 2949

22

8195

74

101

74

20

21

20

26

31

0

40

80

120

160

200

2011 2012 2013 2014 YTD 2015

# D

eal

s

B2B Software Internet & Consumer / E-Commerce Mobility

99 143 171 377 248555 603 808

4,209

1662316 55

42

297

192

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2011 2012 2013 2014 YTD 2015

USD

Mn

B2B Software 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) accounting 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


… 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 valuations

1 Year1-2

Years1-2

Years1-2

Years1-2

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


New Age and Alternative Investors are making a beeline to India…

The Early Risers With Long Term Commitment To Tech Investing In India

Buoyant Market Conditions : Many Hedge Funds & Family Offices Buying Into India Internet & Software

DST Global

http://www.lightspeedvp.com/

http://www.lightspeedvp.com/


M&A has picked up considerably in E-Commerce & Consumer Internet Space

Acquirer Target & Description Deal Value ($mn)

Freecharge*

Online mobile recharge400

AdIQuity Technologies

Mobile Ad NetworkNA

Taxi For Sure

Mobile app for taxi bookings across cities in India200

Babyoye

Onlline retailer of kids and baby productsNA

Wishpicker

Online gift shopNA

Gaadi.com

Online new and used car & bike portalNA

Myntra

Online fashion retailer370

CouponDunia

Online discount coupons aggregatorNA

ngpay

Mobile payment platformNA

Travelguru

Online hotels and holidays booking website15

Letsbuy

Online electronics retailer25

*Snapdeal / Freecharge transaction happened post Q1 2015 and is not included in the analysis on slides 11-14


Global Technology Majors have started looking at India, mostly for Technology and Talent acquisitions

Acquirer Target & Description

Zipdial

Mobile marketing and engagement platform

BookPad

Online document creation and collaboration software

Little Eye Labs

Mobile app analysis tools for app developers and testers

Dexetra

Mobile app with Contextual Recommendations

Talent Neuron

Market Intelligence Tech Tools based on data-analytics

Impermium

Cyber Security

KDK Software

Software solutions for payroll processing, personal finance, and tax

preparation and filing in India

Redbus

Online bus ticketing website


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 Bottlenecks continue to exist……

Limited sales traction in back yard (US, Europe) of Software /

Internet majors; Most start-ups don’t show up on the radar of

acquirers

1

Lack of listed Software / Internet Peers in India to benchmark

against and sluggish & nascent Software / Internet IPO market

in India

2

Low maturity levels in product management & marketing

Companies and entrepreneurs need to focus on building a

globally differentiated proposition and ensure global

accounting & 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


India Technology Product M&A : 2011 – YTD 2015

Product M&A Deal Volume (Cumulative) : 2011 – Q1 2015 Product M&A Deal Value (Cumulative) : 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

- Domestic M&A transactions have been mostly in the Internet/Consumer and E-commerce space, whereas

the inbound M&A deals have predominantly been in the B2B Software area

- Volume of M&A in mobile has increased from 9% in 2010 - Q1 2014 to 14% in 2011 - Q1 2015 period

AdTech & Marketing AutomationB2B Software Internet & Consumer E-Commerce Mobile

Source: Signal Hill & iSPIRT analysis and research, Venture Intelligence, YTD as on March 31, 2015


Inbound and Domestic Deal Volume Split by Sectors (Cumulative 2011 – YTD 2015)

Domestic M&A Transactions 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%

Domestic (Total 137 Deals)

54%31%

1% 9%6%

Inbound (Total ~$1.12b)

10%

32%

44%

2% 12%

Domestic (Total ~$1.15m)

Inbound and Domestic Deal Value Split by Sectors (Cumulative 2011 – YTD 2015)

Ad.Tech & Marketing AutomationB2B Software Internet & Consumer E-Commerce Mobile

Ad.Tech & Marketing AutomationB2B Software Internet & Consumer E-Commerce Mobile



10 149

19

3

810 18

26

6

5

9 3

4

5

4

63

1

3

4

6

11

3

0

10

20

30

40

50

60

70

2011 2012 2013 2014 Q1 2015

# D

eal

s

B2B Software Internet & Consumer E-Commerce Ad.Tech & Marketing Automation Mobile

Product M&A Deal Volume Trend : 2011 – Q1 2015

13 11 1018

1

17

3229

43

16

0

10

20

30

40

50

60

70

2011 2012 2013 2014 Q1 2015

# D

eal

s

Inbound Domestic

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 transactions

- 67% of product M&A transactions in 2014

were domestic and 33% were inbound

- Internet & Consumer sector comprised 43% of

product M&A transactions volume in 2014, of

which majority was domestic

- B2B Software followed Internet & Consumer

sector with 31% share in volume terms, of

which majority was inbound

- % Increase in transaction volume between

2013 and 2014, by key subsectors:

Mobile: ~100%

B2B: >100%

I&C: ~44%



Product M&A Deal Volume: Inbound & Domestic Deep Dive (2011 – Q1 2015)

Product M&A Inbound Deal Volume Trend : 2011 – Q1 2015

Product M&A Domestic Deal Volume Trend : 2011 – Q1 2015

Inbound M&A Volume in 2014 :

- 61% transactions were in B2B Software

sector, with Mobile and Internet &

Consumer sectors comprising 17% & 22%

respectively

- Almost 2x increase in inbound deals for

B2B over 2013

Domestic M&A Volume in 2014 :

- 53% of the domestic M&A transactions in

2014 were in the Internet & Consumer

sector, followed by B2B Software sector

with a 19% share

- Majority of these domestic M&A were

acquihires by larger E-commerce players3

94

83

6

7 16

23

6

3

9 3

4

53

42

1

2

34

7

2

0

10

20

30

40

50

2011 2012 2013 2014 Q1 2015

# D

eal

s


75 5

11

2

3 2

3

2

1

2

1

1

1

2

4

10

4

8

12

16

20

2011 2012 2013 2014 Q1 2015

# D

eal

s



13

605

69

233184

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 Domestic

- Of the $2.3B worth of M&A in 2011-Q1

2015, domestic transactions comprise

51% whereas inbound transactions

comprise the remaining 49%

- Value of the product M&A transactions in

2014 increased over 2013 by 165%

- Product M&A activity in 2015

commenced on a high note with Q1

recording over $313M in transactional

value, which is approximately 38% of

total M&A transactions value in 2014

- E-Commerce transactions 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




Product M&A Deal Value: Inbound & Domestic 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 Software Interenet & Consumer / E-Commerce Others

Estimated Product M&A Inbound Deal Value Trend : 2011 – Q1 2015

Estimated Product M&A Domestic Deal Value Trend : 2011 – Q1 2015

Inbound M&A Value in 2014 :

- Out of $179M inbound M&A in 2014,

software was >80% which is a substantial

increase from 49% in 2014

- Internet & Commerce / Ecommerce share

dropped from 43% in 2013 to 14% in

2014

Domestic M&A Value in 2014 :

- Domestic M&A was dominated by Mobile

as a result of several small acquihires

- Internet & consumer continued to

dominate the value, a trend started in

201325%

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 Software Interenet & Consumer / E-Commerce Others


15

Key Insights from Microsoft Ventures’ Think Next Roundtable

1. The India Consumer Sector has come of age

1. India has 300M+ internet users today, with 15-20M users transacting online. India surpassed US (~279M) in

Dec2014 in terms of number of internet users and is only second to China (~600M)

2. Amazon has said that India was fastest to a $1B GMV for them;

3. New investors such as Tiger, DST Global, Softbank are writing large cheques

2. Discovery: continues to be challenge #1 for India product companies for M&A

1. Most startups are still not on the radar the big US acquirers for BD and eventual M&A

2. Most of the M&A transactions are very small and are domestic (India for India transactions)

3. Entrepreneur Readiness emerging as a new focus area during the M&A process

1. Most entrepreneurs haven’t been through an M&A before, and are unsure about how to handle the process

2. For every deal that goes through, there are 4-5 others that fail because of readiness/preparation issues

3. iSPIRT offers an “M&A hotline” to entrepreneurs to provide support and advice in the event of inbound M&A

interest

16

Key Insights from Microsoft Ventures’ Think Next Roundtable (Cont’d)

4. India and China are different in the evolution of startups

1. Due to protective regulations 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 multi-Billion $ companies

2. Chinese companies historically have cultural and language barriers to expand internationally & hence usually focus on

the domestic market. On the other hand, India has 2 types of startups: India-for-India and India for global

3. Indian companies inherently have a big advantage over Chinese firms in addressing the global market

5. Acqui-hires (acquisitions with the sole intent of acquiring engineering talent) are extremely hot

today

1. Huge shortage of big data, analytics & android/iOS engineers in the valley;

2. Obviously, VC investors are less excited about acquihires & view them as a “last option”. On the other hand, founders

view acquihires as a ‘badge of pedigree’

3. Bar is very high for startups – the entire team will go through interviews during the process, and several startups fail

this stage. An international team can expect to move to the US after the deal

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6. A new generation of entrepreneurs coming up in India

4. Looking to build deep-tech companies based out of India, serving the global market

5. Very much vision-driven: want to change the world rather than “sell-out” early

6. 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

4. First-time entrepreneurs have a higher incentive to ‘cash out’ earlier, since they have invested a large part of their

time with limited salary

5. The VC has the opposite perspective: statistics 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 potential winners

6. 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 Microsoft Ventures’ Think Next Roundtable (Cont’d)

18

Future Trends & Predictions for 2015

1. The large Indian “Unicorns” will aggressively make strategic acquisitions to beef up key areas: focus areas include

Mobile, Big Data / Analytics, Payments, AdTech, etc.

2. Technology Product M&A volumes and values will continue to increase rapidly. In B2B Software cross-border M&A

will continue to dominate transaction volumes & values whereas in E-Commerce and Internet & Consumer domestic M&A transactions

will continue to dominate

3. Significant VC/PE funds will continue to flow into E-Commerce and Consumer Internet sectors, as new alternative

investors continue to enter the market. Key sectors will include the “unbundling and sharing” economy, as well as disruptive 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 ‘sensorification’ of various sectors, including healthcare, enterprise, wearables and industries

5. Acqui-Hires will continue to be a critical component for US and India companies: critical areas include iOS, Android

engineers and Machine Learning/Data Science experts

Signal Hill is a leading independent advisory boutique serving the M&A and private capital raising needs of growth companies. Signal Hill’s experienced bankers provide deep domain expertise and an unyielding commitment to clients in oursectors: Internet & Digital Media, Internet Infrastructure, Services and Software. With over 600 completed transactions and offices in Baltimore, Bangalore, Boston, Nashville, New York, Reston and San Francisco, Signal Hill leverages deep strategicindustry and financial sponsor relationships to help our clients achieve Greater Outcomes®.

19

iSPIRT Foundation is an industry think-tank founded by key participants and proponents of the Indian software product industry. iSPIRT enables a strong ecosystem, connects and guides software product entrepreneurs andhelps catalyse business growth. It encourages buyers to improve performance by leveraging software products effectively. iSPIRT advises policy makers on interventions that can set the industry on a higher growthtrajectory

For questions, please contact:

Sanat Rao,

Partner (M&A), [email protected]

Klaas Oskam

Managing Director, Signal Hill India

[email protected] document has been prepared by Signal Hill Capital Advisory India Private Limited (“SHI”) & iSPIRT for discussion purposes only. The information and opinions contained in this document are derived from public andprivate sources which we believe to be reliable and accurate but which, without further investigation cannot be warranted as to their accuracy, completeness or correctness. This information is supplied on the conditionthat 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 information provided in this document. In particular any numbers, initialvaluations and schedules contained in this document are preliminary and are for discussion purposes only and does not constitute an opinion.

Microsoft Ventures, a global initiative by Microsoft, is a strategic partner for promising startups around the world focused on business growth and development, industrial strength technology and beautiful usable products.Build locally, scale globally. We help smart companies take flight.

Gayathri SharmaHead – Ecosystem Alliances, Microsoft Ventures

mailto:[email protected]

mailto:[email protected]

Technology M&A Monitor - India 2014

Technology

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