Consolidation Wave: M&A Deals In Indian Startup Ecosystem At An All-Time High Of 165 in H1 2022

India’s startup ecosystem is facing a market correction in 2022 after an incredible 2021, which saw it raise almost $42 Bn. As the funding has gone down, the trend of market consolidation has become more and more popular, with 165 M&A deals taking place in the first half of 2022.

Over the last three years, there have been 81 M&A deals on average in either half of the year. This means the deals in H1 2022 exceeded the average by more than twice.

During the second half of 2021, there were only 137 M&A deals, and in H1 2021, only 73 such deals took place in the country. Therefore, year-on-year (YoY), H1 2022 recorded a 126% growth in M&A deals.

The M&A deals have been on a rise since the first half of 2020. Over the two years since then, M&A deals have increased 372%. 

Why The Consolidation?

During the start of the year, public equity markets across the world saw a large-scale correction, leading to a rout of tech stocks. The poor performance of tech startup stocks on India’s stock market also relates to the same correction across the world.

The correction has now hit the private equity markets, which has seen startup funding go down as marquee investors record massive losses on their portfolio investments. 

This has mostly impacted the growth and late-stage funding in the Indian ecosystem. According to Inc42 data, late-stage funding reduced by 52% in H1 2022 from H2 2021, with mega funding deals (deals worth $100 Mn or more) declining 39% in H1 2022. 

Further, growth-stage funding declined by almost a billion dollars over the last six months as compared to the second half of 2022.

The shift in investor focus is also reflected in the funds that have been launched so far in 2022. Of the 57 funds launched so far in H1 2022, 37 are early-stage funds. At the same time, India has seen seed funding grow four times YoY, clearly reflecting investor sentiment in the country.

This makes one thing abundantly clear; investors are rushing to make exits. With increasing startup valuations, the cash crunch has only intensified. This has already seen startups, in a bid to cut costs, laying off more than 11,000 employees, according to Inc42’s Indian Startup Layoff Tracker.

While it might seem that the funding crunch has prompted consolidation in the startup ecosystem, it is not as black and white. Long-term market cycles have shown that consolidation follows after every surge in funding activity.

This was exemplified in 2021. Last year saw an increase in funding activity, with Indian startups raising $10 Bn in H1 2021. Over the next half, there were 137 M&A deals, up 87% from 73 deals that took place in H1 2021.

The same cycle can be observed for H2 2021 and H1 2022. The second half of 2021 saw Indian startups raise almost $32 Bn in funding, and the first half of 2022 saw 165 M&A deals, up 20% from H2 2021.

Ecommerce Leads The Way In Startup M&As

The ecommerce sector accounted for 38, or 23%, of the 165 M&A deals in H1 2022.

Enterprisetech closely followed ecommerce, with 37 deals in H1 2022. Interestingly, enterprisetech was the sector with the most consolidation activity in Q1 2022, but by the end of Q2 2022, ecommerce saw a surge in M&A deals. 

Edtech, consumer services, fintech and media & entertainment are the other sectors which saw significant consolidation.

It should be noted that 58% of all ecommerce M&A deals were done by Thrasio-based roll-up ecommerce startups such as Mensa Brands and GlobalBees.

GlobalBees, Curefoods and Mensa Brands: Top Acquirers Of H1 2022

Over the last six months, ecommerce roll-up unicorn GlobalBees was the biggest acquirer in India, buying nine startups in six months. 

Some of the notable acquisitions by the startup were healthy-snack food brand The Butternut Company, sustainable clothing company Mush and sports fitness equipment brand Strauss. Inc42 exclusively reported the unicorn’s investment in consumer electronics startup Candes.

Apart from this, GlobalBees has already acquired six other startups, with the unicorn investing in five startups as late as June 2022.

Cloud kitchen startup Curefoods was the second-busiest startup in terms of M&A, with six deals so far in 2022. The startup, which raised $50 Mn last month, acquired milkshake brand Frozen Bottle in March and merged with Swiggy-backed cloud kitchen player Maverix earlier in January.

Mensa Brands, India’s fastest unicorn, was in the third position with five M&A deals of its own. Mensa also made one of the biggest acquisitions of the year so far when it acquired MensXP, a content commerce platform, and iDiva from Times Internet. The deal, worth a reported $100 Mn, was the biggest of its kind.

Further, Mensa also picked up wearable devices startup Pebble, gardening startup Trustbasket, aromatherapy and personal care D2C startup Florona and leather goods manufacturer and seller Estalon.

Blinkit, Pickkr and Addverb: Biggest M&A Deals Of H1 2022

While there were six M&A deals worth more than $100 Mn this year so far, Zomato’s purchase of Blinkit for $570 Mn made the most headlines.

While Zomato’s investors seem to disagree with the company’s decision to acquire a loss-making business, Shiprocket’s acquisition of competitor Pickkr for $200 Mn was welcomed. 

Reliance’s acquisition of robotics startup Addverb Technologies for $132 Mn completed the top three M&A deals in 2022 so far.

Mumbai, Delhi, Bengaluru: Which City Wins The M&A Wars?

In the first half of 2022, Mumbai saw the maximum M&A. 42 out of the total 165 deals, or a quarter of the total took place in Maharashtra’s capital.

Delhi NCR was only one deal behind Mumbai with 41 M&A deals, while the country’s biggest startup hub Bengaluru saw 36 M&As in H1 2022.

This can be interpreted in two manners: either Mumbai’s startup ecosystem is facing the worst of the funding winter, or there is a bigger trend of M&As there than anywhere else. 

It should be noted that the biggest acquirer, GlobalBees, is based in Delhi NCR, while two of the top three – Mensa Brands and Curefoods – are based in Bengaluru. Interestingly, of the top five, three are based in Delhi NCR, which explains the high number of M&A deals in the region.

However, there are only two Mumbai-based startups in the top 10 biggest acquirers, which have made seven acquisitions in all.

Consolidation Set To Continue

Indian startups raised $19 Bn in the first half of 2022. While that is a record-breaking number in itself – no year has had a better start – the first three and the last three months of H1 2022 paint very different pictures.

It is clear that the funding momentum generated towards the end of 2021 fizzled out by April. July did not start on a good note either, with only $116 Mn being raised in the first week of H2 2022, becoming one of the slowest funding weeks of the year so far. 

The shifting focus of investors, coupled with global macroeconomic pressures such as rising interest rates and a strengthening US dollar, means that consolidation looks set to continue in India’s startup ecosystem.