M&As In Indian Startup Ecosystem Nosedive To All-Time Low

While the Indian startup ecosystem managed to beat the gloom of the extended funding winter in 2024, interest in consolidation activities dipped to below 2015 levels during the year. As per Inc42’s ‘Indian Tech Startup Funding Report 2024’, the Indian startup ecosystem witnessed 71 mergers and acquisitions (M&As) materialise till December 21, 2024.

This was the lowest number of M&A deals in the Indian startup ecosystem over the last 10 years. The second-lowest number in terms of M&As in the last 10 years was 82 in 2020. However, consolidation picked up pace in the following three years after that.

After surging to 210 in 2021, the number of M&As in the Indian startup ecosystem shot up to 240 in 2022. This number came down to 123 in the last year. Hence, an over 40% dip in M&As was seen in the startup ecosystem in 2024.  

This slump came despite startup funding rising 20% to $12 Bn in 2024 from $10 Bn in the previous year.

So, what was the reason behind this sharp decline in M&As? The answer is in line with Inc42’s prediction at the start of the year when we said that the abysmal funding performance in 2023 could lead to another year of slow M&A activity in 2024. 

Commenting on the sharp decline in M&As, Prime Venture Partners’ managing partner Sanjay Swamy said while the ecosystem recovered from the brunt of the funding winter in 2024, the valuations were still expensive. Founders weren’t ready to take big enough valuation cuts for mergers and acquisitions, and overpriced entities weren’t attractive enough for potential listed buyers, he added.

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Meanwhile, BellWether Associates and Auxano VC managing partner Brijesh Damodaran said that the startup ecosystem has been getting acquainted with a new normal, where there is no fear of missing out, for the last six to eight quarters.

“Consolidation is the name and each of the sectors is working towards improving the bottom line. In such a phase, M&As take a backseat. A combination of economic conditions (when everything is in place), a fluid regulatory environment, and increased scrutiny of transactions, coupled with valuation challenges and cultural integration issues, has had an impact. Once this is settled, we will see more action,” Damodaran added.

M&A Count Hurt By Diminishing Consolidation In Ecommerce 

The ecommerce sector saw one of the highest numbers of M&As over the last few years. In the M&A boom years of 2021 and 2022, such deals in the ecommerce sector surged to 54 and 59, respectively. Flush with capital, the space saw many startups adopt a Thrasio-style ‘house of brands’ strategy to fuel growth over the past two years. 

However, the M&A activity in the segment dipped significantly to 25 deals in 2023 and reduced further to a mere six deals in 2024. One of the reasons behind this decline was that the ‘house of brands’ startups like The Good Glamm Group and Mensa Brands didn’t make any new acquisitions this year. 

According to investors, the roll-up model hasn’t given the desired return on investments for ecommerce entities. Another reason for the decline in ecommerce M&A was the scarcity of capital. In 2024, ecommerce funding dipped 42% year-on-year to $1.5 Bn across 203 deals. 

Commenting on the dip in ecommerce M&As, Adith Podhar, general partner at Gemba Capital, told Inc42 earlier this year that he doesn’t foresee any consolidation or mergers among the large ecommerce players. However, some of the bigger companies in the sector can likely acquire smaller ones to gain market share in new categories.

“For example, Flipkart acquired Myntra, allowing them to at least compete with AJIO or Tata CLiQ. However, they let companies like Nykaa, which focusses on personal care, and FirstCry, which specialises in baby products, grow significantly. They probably won’t make that mistake again. If a new vertical emerges and a major player begins to dominate it, the larger ecommerce companies will likely try to acquire those businesses before they become too big,” Podhar explained.

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While M&A activity plunged the most in the ecommerce segment, the enterprise tech sector retained its top spot in 2024.

A total of 21 M&A deals took place in the enterprise tech sector in 2024, including prominent ones like BrowserStack’s acquisition of Bird Eats Bug, Symphony Technology Group’s acquisition of Eka Software, and Aurionpro Solutions acquiring Arya.ai. However, the number of M&As in the sector declined 36% from 33 deals in 2023.

Will M&As Pick Up In 2025? 

While the number of acquisitions were hit significantly in the unlisted space, listed new-age tech companies were more open to exploring such deals. One of the biggest deals this year was Zomato’s acquisition of Paytm’s entertainment ticketing arm, Paytm Insider, for a whopping $240 Mn. 

Listed gaming company Nazara Technologies was the most active this year in terms of M&As. Nazara acquired stakes in multiple entities, including Pokerbaazi, Fusebox, Funky Monkeys, STAN, Trinity Gaming, AFK Gaming, among others, in 2024. Besides, Nykaa, Honasa Consumer and FirstCry’s GlobalBees were also active in 2024. 

Prime Ventures’ Swamy believes that with a number of new-age tech companies expected to go public next year, M&As will pick up. For context, 13 new-age tech companies made their debut on the bourses in 2024. This number is expected to surge to over 20 in 2025.

“Public companies do not have the ability to innovate much and can’t invest much in new ideas which will take time to materialise. Hence, they will look to acquire companies which are profitable and accretive and in complementary areas. So after 3-6 months, I expect a period of hyperactivity on the M&A front in the second half of 2025,” he said.

[Edited By Vinaykumar Rai]

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