Top 3 Reasons Why Foreign Buyers Acquire Indian SMEs

      “Go Global – Opportunities Abound When You Walk the Extra Mile”

While running an established and thriving IT SME business in New Delhi, Niraj* received a lucrative opportunity to head an exciting project in Canada. At the same time, thousands of miles away, Larry* and Carol*, two IT consulting professionals from the U.S. were looking to relocate to India by acquiring an attractive IT venture with a strong first line management team. As of now, the two parties who met through indiabizforsale.com a few months back, are already in the process of closing a mutually agreeable deal. 

In the last few years, interest of foreign buyers have soared in Indian businesses. Earlier this year, Facebook made its first Indian acquisition – the mobile analytics company Little Eye Labs. Retail giant Walmart acquired Flipkart amidst unputdownable buzz. And just recently in June this year, Bangalore-based mobile app development company Sourcebits was taken over by US-based Globo.

However, it’s not just India’s mega-popular tech startups. Our homegrown breed of SMEs have also grabbed the eyeballs of international investors looking for acquisition opportunities in India. Ahmedabad based Nirmit Parikh, for example, secured a profitable exit from his SME a few years ago from an international buyer. Founded by Nirmit, CruxLight – which creates short summaries of online articles – was acquired by US-based ed-tech company Kno, which in turn was acquired by Intel just 6 months later.1  In another and more recent example, Bangalore-based SME Colimetrics was acquired earlier this year by US-based ActMobile.

What motivation do international buyers have in buying out Indian SMEs? In this article, we share their top 3 motivations with you by illustrating through case studies from our platform, as well as with other relevant examples from the industry.

Motivation #1: Acqui-hire India’s Indigenous Technology and Talent

If you thought that acquisition is only a game of the giants, consider the fascinating journey of an US-based IT consulting professionals Larry and Carol who found their dream venture through Indiabizforsale.com. Both of them being specialized in IT consulting with strong industry experience, they first reached out to indiabizforsale.com sharing their passion for the booming IT sector, and their desire to relocate to India upon zeroing in on an attractive business opportunity in this domain.

However, even as search for prospects for them began through our platform listings and other external sources, several kinks remained to be ironed, one of the key questions being – how best could they manage the rigour of buying and managing a company before they fully relocated to India? They joined hands with our team to come up with a creative solution, by planning frequent visits to India during which site-visits and due-diligence discussions were scheduled, while email and telephonic communication took care of the rest. After several in-depth discussions with our deal experts, we realized that the ideal proposition for them would be acqui-hiring an Indian IT business with a stable and capable first line of management and with a clear edge in technology and development. Soon, a New Delhi-based IT firm emerged as one of the top contenders. Incidentally, the owner of this firm is seeking to move abroad, resulting in a win-win opportunity. The deal is now well into progression with a clear road-map for transition ahead.

Acqui-hiring is particularly prominent in the Indian IT landscape which is characterized by cheap yet vast talent pool, technology advancements and established global clientele. For example, in 2017, Google acqui-hired the 4-months old Halli Labs based in Bengaluru as its first strategic acquisition in the country. Bolstering its technology and talent pool, the acquired entity is now a key driver of Google’s Next Billion Users initiative.2

Motivation #2: Plunge into Emerging Sectors in Developing Economies

Did you know? With the recent aggressive growth stint of traditional herbal mega-brands like Patanjali, India’s ayurvedic products market is now more lucrative than ever. When a buyer from the U.S. approached us and heard an account of this fascinating story of a hyper-local traditional brand becoming a leading domestic and global force, she promptly became interested in investing attractive distribution partnership opportunities in Herbal and Ayurvedic segment. Her aim is to market innovative products in the health and beauty domain – first targeting the Indian market and then expanding globally. She is also keen to obtain distributorship rights for other well known herbal brands in the country and then maximize their export potential in global markets.

Another example of an emerging sector in developing economies is the payments sector. While opportunities for payments technology are abundant in developed countries, it is still very nascent in developing economies like India. Seizing this opportunity, Ebix, a leading international supplier based out of U.S. that provides software and e-commerce solutions to global insurance providers, has acquired an Indian SME in payments sector – Itzcash – in 2017 for 80% controlling stake.3

Motivation #3: Maximize Client Base & Market Penetration

One of the recent buyer interests on our platform has been an interesting case of market penetration. India, one of the largest exporter-producer countries in milk, has had surprisingly low technology quotient, particularly in the sourcing, processing and distribution aspects. A prospective buyer from Australia, with over 30 years of experience in dairy technology has approached us seeking distributor partnership opportunities to enable her to invest intellectual and professional capital, technical capability, innovation, and nurture a prospective business from ground zero. Having a dedicated expert team and a capable first line of management is one of the top priorities for a win-win deal to culminate. The commitment demonstrated by international buyers in acquiring ownership & controlling stake in Indian SMEs is an increasingly new trend that is coming of age.

In fact, capturing global clientele also continues to be one of the driving factors behind strategic acquisitions by foreign buyers in Indian SMEs. For example, US-based Ebix has also acquired Healthcare Magic for USD 18.5 mn, one of the most important motivations being the fact that about 80 percent of Healthcare Magic’s revenues accrue from outside India.4

Concluding Note

With the recent surge in cross border capital movement in India and the increasing visibility of Indian businesses, we hope that more and more international buyers will let Indian SMEs take the centre-stage. To fuel this trend, more stringent governance practices, better synchronization of domestic standards to global norms and more rapid technology innovation in various sectors will lead the way.

If you liked this post and would like to read more such insightful pieces, stay tuned to our blog. Visit www.indiabizforsale.com to know more about what we do and how we can help you.

 

*Please note that some of the names have been changed in this article to protect confidentiality of the parties involved

Reference: https://www.businesstoday.in/magazine/cover-story/smes-bash-gaming-silicon-valley-bingo-bash/story/209602.html

2Reference: https://inc42.com/features/indian-startup-acquisitions-2017/

3Reference: https://inc42.com/features/indian-startup-acquisitions-2017/

4Reference: https://www.businesstoday.in/magazine/cover-story/smes-bash-gaming-silicon-valley-bingo-bash/story/209602.html

 

 

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