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Startup Acquisition: Why are corporates interested in it?

Startup Acquisition

Mergers and acquisitions used to be relatively simple. This is because companies would only acquire companies in their industry. This meant that if a technology-based startup was for sale, only Google and Microsoft would be interested. This has all changed. Traditional corporations such as General Electric and Wal-Mart have made several startup acquisition. Many people were surprised by this, given that these firms lack the expertise required to manage a technology firm. However, there is a clear trend. Non-tech firms acquired more tech-based startups in 2017 than large tech firms did.

There have been 119 startup acquisition and merger agreements completed since January 2021, compared to 86 for the entire year of 2020. Mergers and acquisitions totaled $1.3 billion in 2020; by 2021, the figure had risen to $3.8 billion. These are just the agreements that have been made public; the vast majority of them have not been made public, and their value could be far greater. And, with less than a month until the end of the year, there’s bound to be more.


Top Startup Acquisition in India

Unacademy acquisitions

Unacademy is a Bengaluru-based EdTech company with a network of more than 18,000 educators. It offers both free and paid Live Classes for various professional and educational admission examinations. Since 2020, Unacademy has acquired eleven companies, some of which are listed below.

Kreatryx

Kreatryx, a platform founded in 2014 that offers videos, test series, and a postal tracking tool for GATE, CIL, SSC, and ESE exams, was acquired in March 2020 in a cash and stock deal. Ankit Goyal, the company’s founder, remains in charge. Due to the acquisition, Unacademy gained a competitive advantage in the GATE and ESE exam prep markets.

CodeChef

CodeChef was founded in 2009 and was acquired by Unacedemy in June 2020. The acquisition is expected to aid the development of a coding skills segment for students by the Facebook-backed company.

PrepLadder

PrepLadder, a platform founded in 2015 that prepares students for postgraduate medical entrance exams, was acquired by Unacademy for $50 million. As a result of this move, Unacademy’s standing in the medical entrance examination categories has increased.

Mastree

Mastree, a K12 learning platform founded in 2019, focuses primarily on core curricular subjects. Unacedmy purchased it for $5 million in July 2020. The company’s position in the K12 education market was strengthened as a result of this acquisition. Mastree was shut down by unacademy after a year of ownership in September 2021. In the same line, it also debuted ‘Graphy.’ Users can study books and unique material using photos, videos, quizzes, and audio.

Coursavy 

Unacademy purchased Coursavy in September 2020 to strengthen its position in the Union Public Service Commission (UPSC) examinations category. Coursavy, which was founded in 2018, is a platform that provides students with handwritten study notes and comprehensive quizzes as well as live lectures and online courses.


Flipkart startup acquisition of Scapic

Flipkart purchased Augmented Reality (AR) company Scapic in November 2020 to make shopping on its platform more engaging. Flipkart did not disclose the acquisition’s financial terms. It acquired the Scapic team as part of the transaction. It’s part of Flipkart’s plan to provide more immersive camera experiences, virtual shops, and new ways for brands to advertise on the site.


EY India startup acquisition of Spotmentor Technologies

EY is a global leader in assurance, consultancy, strategy and transactions, and tax services. Spotmentor Technologies, an end-to-end skilling platform that assists organizations in discovering skills required for the future of work, upskilling, and reskilling employees at scale, was acquired by EY India in November 2020 for an undisclosed sum. It employs cutting-edge technology such as artificial intelligence and machine learning to assist organizations in filling critical skill gaps.


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Why are corporates interested in startup acquisition?

Every Business Is a Technology Business: 

In the twenty-first century, every business is going mobile. From buying books to buying cars, some of the purchasing processes are completed online. As a result, no company does not have an online presence. Even industrial-age businesses require a digital footprint. This is where the purchases come in handy. Large corporations, such as Wal-Mart, acquire small online retailers that have developed proprietary technology. 

This technology can then be used by Wal-Mart to significantly increase its online presence. This is why many technology-based startups in sectors such as Fintech and e-commerce are more valuable to traditional companies and banks than to other tech firms. Industrial-age companies are willing to pay more because they are more valuable and contribute to the overall business model. This explains the rise in inter-industry acquisitions. To an untrained eye, they may appear unrelated. However, such acquisitions provide synergy and value.

Leaping Ahead:

Traditional businesses lack the workforce required to develop and maintain high-end technology products. However, that is the only source of competitive advantage these days. This is why industrial-age businesses are attempting to establish digital departments. However, many people have discovered that it can be both time-consuming and counterproductive. This is why acquisitions make sense. Acquisitions allow businesses to get ahead of the competition. When General Electric purchases a technology startup, they significantly reduce their chances of being laid off.

Cost-cutting measures: 

Subscriptions to technological products can be prohibitively expensive. This explains why technology companies are among the most profitable in the world. These memberships quickly add up. As a result, many companies want to do away with these subscription fees. If a company finds a start-up that has created a product that they need regularly, they may be better off purchasing the item directly from the company rather than paying yearly subscription fees. This strategy not only lowers costs but also boosts profits by allowing the company to generate new revenue streams.

Access to More Resources and Clients: 

The primary reason that startups sell to larger corporations is to gain access to deep pockets. Most startups fail during their early stages due to a lack of capital. The acquisition by a massive industrial-age corporation ensures that the lack of cash will not be an issue. This allows promoters to focus on the product design and other issues that will be important in the long run rather than worrying about their immediate cash flow.

These businesses have tens of thousands of customers. As a result, the startup has a steady user base. These firms may also refer the startup to other sister firms. As a result, the startup benefits because the number of customers and resources allocated to the product grows at an exponential rate.

Recent Acquisitions by Corporates


The ownership of Addverb by Reliance

Reliance Industries Limited acquired a 54 percent stake in Addverb Technologies, an Indian robotics startup, for USD 132 million. The Noida-based startup focuses on warehouse and factory automation as well as robotics solutions. Reliance already uses Addverb robotic conveyors, pick-by-voice software, and semi-automated systems in its warehouses. Each calendar year, Addverb manufactures approximately 10,000 robots, including mobile robots, sorting robots, pallet shuttles, and carton shuttles. Furthermore, 80 percent of the startup’s revenue comes from the domestic market. The robotics startup intends to use Reliance’s resources to achieve its goal of becoming a billion-dollar company within the next five years by focusing on the global market.

HCL’s acquisition of GBS and Starschema

HCL Technologies has acquired a majority (51% stake) in Gesellschaft für Banksysteme GmbH, a German IT consulting firm (GBS). The remaining stake (49%) is held by Germany’s largest cooperative primary bank, Deutsche Apotheker- und Arztbank eG. (apoBank). In addition, HCL has agreed to pay USD 42.5 million for the Budapest-based company Starschema to strengthen its data engineering services and establish a stronghold in Central and Eastern Europe. The transaction is subject to regulatory approval from Hungary’s Ministry of Innovation and Technology and is scheduled to close in March 2022. Starschema, established in 2006, provides data engineering consulting, technology, and managed services. 

With the agreement, HCL will be able to offer data engineering consulting and near-shore access to digital engineering services to a larger client base. The acquisition’s overarching goal is to combine Starschema’s data-focused expertise with HCL’s industry presence to enable a data-driven transformation.

The oddity was bought by Infosys

Oddity, German online marketing, experience, and business agency, has agreed to be purchased by Infosys in writing. The move will strengthen Infosys’ creative, brand recognition, and experience technical capabilities while also trying to demonstrate the company’s ongoing commitment to working with customers and trying to assist them in their digital transformation efforts. “It easily complements Infosys’ technological transformation expertise by utilizing Oddity’s digital commerce, marketing capabilities, and metaverse-ready setup,” said Infosys President in a statement. In Europe and China, Oddity provides a wide range of services such as digital-first brand communications and management in-house production, augmented and virtual reality, user experience, and e-commerce. The deal will help Infosys’ metaverse strategy.


Conclusion

These businesses have tens of thousands of customers. As a result, the startup has a steady user base. These firms may also refer the startup to other sister firms. As a result, the startup benefits because the number of customers and resources allocated to the product grows at an exponential rate.

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