Product Buyouts By Services Companies Aren’t Likely to Increase [Interview]

The number of deals in the mid market technology segment haven’t been great in India. With little access to technology buyers in the US, Indian product companies often miss out on opportunities to get acquired. Over the next year or so, many are hoping this would change. We caught up with Kunal Walia, the Managing Partner at Khetal Advisors, a boutique investment banking firm to understand if domestic demand to acquire software product firms is likely to pick up. Edited Excerpts of the interview.investor money

Are the Indian IT services companies looking to acquire product companies?

No. Very honestly, I’m not sure where this notion comes from. There isn’t a single IT services company that I know in India who are looking at the current Indian products. Where is the enterprise startup? These guys need enterprise startups. If you want to sell your companies to them, you’d probably be building an insurance reservation product or a telecom switching gear which they can turn around and sell to a British Telecom or a banking suite. But where are those companies?

We’ve got great companies like WebEngage, Zoho or Zomato who are either SME targeted or consumer focused. The reason is that there isn’t really a market for enterprise products in India yet. Even if there is a market, there is no channel. The sales is a long drawn out process.

Are we likely to see more acquisitions happening for talent?

Absolutely. When I talk to clients with revenues around $25mn- $40 mn, the first thing they ask is how am I going to manage because my second level is not that strong. This is a great way to get these people in. Today it is pretty much understood that if you don’t have a business doing over $250 mn in sales, forget about an IPO. So they are saying hey, lets build businesses that are profitable and are scaling at a good pace. The M&A requirement is coming from building the business point of view instead of how do we get to an IPO.

Location is another factor for some acquisitions. Some companies want to expand to a certain region.

From a product perspective, I wish there were more such acquisitions. In India, we all come from the Ambani way of thinking that if we can build it, why buy.

What kind of acquisitions are likely to happen in E-commerce?

We might see some of them buying smaller players who are solving smaller parts of the puzzle.

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