Tag Archives: acquisition target

Conversations with 21 Chief Strategy Officers: 2020 will be the year of digital transformation acquisitions

Over the last 10 years many in the technology industry have heard of and used the term “digital transformation” to support their case to a) move to the cloud, b) revamp old systems, c) leverage new technologies such as IoT (Internet of Things) or Blockchain or d) replace older internal IT systems to newer “born on the cloud” technologies.

In December 2019, I spent time talking to 21 corporate development leaders in mainline industries such as finance (banks, insurance), healthcare (providers) and manufacturing (automotive) to get a sense for their priorities.

The big takeaway from my discussions is 2020 will be the year that many startups founded between 2011 and 2019 will get acquired by companies in their industry. There are 5 major reasons why they believe this to be true.

  1. The stock market is at all time highs, valuing their stock significantly, which gives them lots of optionality to purchase startups with stock instead of cash. Many anticipate flat to lower gains in the stock market this year.
  2. Board level discussions around moving quickly before high valuations get even more frothy have been asking corporate development teams to come up with options quicker. While there are multiple stories of unicorns with lower valuations in the public markets (e.g. Uber, Lyft, etc.) the private markets are still richly valuing their companies.
  3. Many CEOs fear being disrupted by early stage startups more in “mindshare” and “eyes of the customer” than necessarily in revenue.
  4. Related to stock prices, debt financing is still relatively cheap and widely available, making it an easy option for larger, cash flow rich companies.
  5. Over the last 5 years (2015 – 2019) there has been a rise in corporate development roles within large companies and an increase in product or business line executives taking over the role from a previously “finance” executive. This has led to changes in the way “strategic” acquisitions are considered versus financial transactions.

What 4 Indian investors with $2 billion under management are looking to fund now

This post will be a random stream of thoughts, rather than a well constructed thoughtful essay. Apologies.

4 technology venture investors were at the accelerator today to listen to 7 corporate development and M&A teams on what they were looking for in an acquisition. The 4 investors together have over $2 Billion invested in India in the technology companies alone.

Exits are critically important to their (and hence entrepreneur’s) success. Exits with good premiums are even more important to them, but I am getting ahead of myself.

There are many reasons why a company acquires another company, but the 2 most important we talked about were a) Access to markets – in our case, India and b) Access to Intellectual capital.

Local acquisitions (Indian companies buying Indian startups) are fairly rare since many of the larger technology companies in India (services companies) dont believe they need IP based offerings and have the access to the market already.

Thanks to the FDI issues, eCommerce companies, which would have been a acquisition target for many companies are not longer on the shopping list of many acquirers.

So if you are looking to get investment from these venture investors, you will have to really follow the money trail, which starts at where companies are getting bought (since IPO’s are fairly rare).

For many of the larger technology companies, access to Indian markets is not a huge issue, (there are exceptions, IFlex and Oracle being one) and a few others might still happen, but the large source of exits will still be companies who need Intellectual property and those that need access to markets.

While many Indian entrepreneurs still hate the word “exit” and believe it is an unnatural act, they still do need to provide returns for their investors.

So to raise money now, you better have a clear idea about how you can plug a “white space” that exists among the larger companies from an Intellectual Property standpoint.

Some areas that we discussed were a) Payments b) Indic language technology c) On boarding SMB on the Internet d) cloud infrastructure and e) Software defined networking (SDN).