iSPIRT & Microsoft Thinknext 2014

Trends in Corporate Development: The Emerging

Landscape of M&A
Introduction
2014 has been a blowout year for Global technology M&A so far: According to
numbers released by E&Y, the first quarter of 2014 saw $66.6B in disclosed deal
values, the highest in 14 years. Marquee deals for the year include Facebooks
acquisition of WhatsApp for $19B, Lenovo spending $2.9B to buy Motorola mobility
from Google, Googles acquisition of Nest for $3.2B, etc.
The story for the India software product industry has been different. Despite huge
innovation and rising entrepreneurship, most Indian product companies have
lacked meaningful exits. According to a recently released study by iSPIRT and
Signal Hill, India has seen 159 M&A deals in the timeframe 2010-present, at an
overall value of $1.78B. This means that the average deal size is $11M, ~10x
lower than that of the Silicon Valley.
Table1: India M&A Deals: 2010-Present1

1 iSPIRT & Signal Hill Product Industry Monitor report May 2014

We see from the charts in Table 1 & 2 that a big chunk of the value in M&A is in B2B
software: while 31% of deals in India were B2B software, this sector represented 38% of
the overall deal value. This is in keeping with the global trends in the tech industry.

Table2: India M&A Deals by Value: 2010-Present2

Table 2 above shows the total inbound M&A deals and the total domestic M&A
deals between 2010-14 across different sectors. We can see that 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.
In the recent past, weve had a few high profile acquisitions in India Naspers
acquired RedBus, Facebook completed a deal in the mobile tools space with Little

2 ISPIRT & Signal Hill: Product Industry Monitor report May 2014

Eye labs etc., Sophos acquired Cyberroam in the security arena, etc.
well for the future for India M&A.

This augurs

Key Learnings from the iSPIRT & Microsoft ThinkNext Panel on

M&A
iSPIRT and Microsoft hosted a Panel discussion on Trends in Corporate
Development: The Emerging Landscape of M&A at Microsoft ThinkNext in
Bangalore in May 2014. This was the first panel of its kind, with a very interesting
setup: 2 VCs, 2 entrepreneurs and 2 Corp Development folks from MNCs. The
event was moderated by Sanat Rao, Partner (M&A) at iSPIRT and the star panelists
consisted of Ashish Gupta (Helion Ventures), Bharti Jacob (Seedfund), Ken Foo
(Autodesk), Prashant Gupta (Microsoft), Sanjay Shah (Invensys Skelta) & Phani
Sama (Redbus). We had a marquee audience of VCs from IDG, Lightspeed,
Qualcomm, Inventus etc. who contributed their insights.
Here are some of the key insights that were covered in the panel:
1. Discovery continues to be problem #1 for India software product
companies. Most Indian startups dont show up on the radar of the big US
acquirers, both for business development and eventual M&A (since business
engagement is usually a precursor to M&A). Autodesk first discovered
Qontext (their marquee India acquisition in 2012) through analyst reports in
the US, and understood the team structure and India setup only later in the
process.
2. Corp development folks are mostly agnostic to the location of the company.
As Ken Foo from Autodesk put it, we dont start our day thinking: today I
will acquire an Israeli company or an Indian company. They are looking
for a specific product or technology fit & location is secondary. In case of the
Autodesk acquisition of Qontext, the fact that the company was
predominantly based in Hyderabad was relatively irrelevant and only came
up once the technology diligence discussions were ongoing.
3. One interesting insight was the Investment bankers didnt really seem to
play a role during the discovery process, and all of the participants (buy side,
VCs and entrepreneurs) felt that startups shouldnt expect a banker to help
with initial strategic engagements. Partnerships and strategic alliances are a
critical part of a startups day-to-day activity, and are stepping stones to

eventual M&A. iBanks of course do play an important role in helping

negotiate the deal and running the process to a positive conclusion.
4. Acqui-hires (acquisitions with the sole intent of acquiring engineering
talent) are extremely hot right now, due to the shortage of big data, analytics
& android/iOS engineers. Obviously, VC investors are less excited about
acquihires & view them as a last option. As Ashish put it, a VC will
entertain an acquihire deal only when he believes that scaling the company
is no longer possible, and the company is in danger of running out of cash.
On the other hand, Corp development folks at the MNCs view acquihires as a
badge of pedigree for the founders!
5. Entrepreneur readiness continues to be a challenge during the M&A
process. Indian entrepreneurs traditionally are techies and dont spend time
building a clear differentiation story or preparing themselves for
organizational and financial diligence. iSPIRT does offer an M&A hotline to
entrepreneurs where we formally provide advice in the event of an inbound
M&A interest.
6. A new generation of MNCs: Traditionally, MNC companies have
established captive R&D centers in India (e.g.: Intel, Cisco) and then looked
at M&A to enter the India market or identify new technologies. However,
the panelists believed that M&A activity in software products will be driven
by a new generation of MNC companies, such as Facebook, Salesforce,
Autodesk etc. who have limited or no presence in India, and are looking to
use M&A as a means to acquire global talent and/or establish a presence in
India
7. Future M&A: Based on the Virtual Mandates that iSPIRT has received and
the open feedback from the panelists, we believe that future technology M&A
is likely to happen in the areas of Machine Learning & Analytics, SaaS
disruptions like HR and Recruiting, Cloud Infrastructure & Mobility.
Companies that have aggregated large groups of customers & partners
within India (small medium businesses, classifieds, consumers for finance
etc.) are also interesting for acquirers.

Next Steps:

Microsoft Ventures and iSPIRT to conduct workshops to prepare

entrepreneurs for M&A - focusing on due-diligence, valuation and presenting
their case to potential acquirers
As part of its M&A Connect initiative, iSPIRT will continue to deepen engagement
with Corp Dev folks in various organizations to understand mandates and priorities

iSPIRT will work closely with VCs and Entrepreneurs and act as intermediaries to
facilitate exits through acquisitions