M & A broking firms find the Indian IT sector a great market. There are thousands of IT startups in India. The startup ecosystem in India has grown rapidly in recent years, with many young entrepreneurs starting their own companies in the IT sector. Some of India’s most successful IT startups include Flipkart, Ola, Paytm, Zomato, Policy Bazar, Nykaa, and Swiggy. The Indian government has also been promoting the startup culture by launching various initiatives and schemes to support and encourage entrepreneurs in the country.
The Indian IT startup market, like the global IT market, is full of – brilliant minds, entrepreneurs, fast buck seekers, frustrated IT professionals fed up with routine tasks, etc. Many will fail, others will give up, unable to take the pressure of building a company, some will continue and overleverage themselves, getting into severe debt, and a few will succeed and build huge enduring enterprises like Infosys, Tata Consultancy Services, etc.
In the hugely competitive IT industry, opportunity and technology growth is matched by many entrepreneurs. Historically the IT industry has been known for having many M & A deals. Factors like technology advancement, market consolidation, and changes in business models have led to many mergers and acquisitions in the industry. But the biggest reason for takeover in the Indian market, in the future, probably will be governance quality. Companies unable to maintain governance quality will likely become acquisition targets. For example, go-Mechanic, an e-commerce company, is in trouble because of problems related to Founder ethics.
Some relatively successful IT startups with outsized valuations have seen their share prices tank post very successful IPOs. Market participants have placed this drop in share prices on valuation. I think there is more to it than valuation. Anyone in business understands that profitability is a key metric that supports a robust performance in the public market. I find it difficult to accept that the startup Founders whose stock prices tanked post-IPO were unaware of this fact. I attribute the current poor performance of these post-IPO startups to poor corporate governance.
In such a scenario, the big will eat the small fish, and the law of the jungle will prevail. As India develops and more opportunities for better employment and business become available in diverse sectors, the fittest will survive. Consolidation is inevitable. Some of this will happen naturally. Often the big guys will force this to happen by poaching the best in a company, out-competing the smaller companies with niche technologies, and using their brand as a sledgehammer to secure business.
Survival will require companies to build durable assets, focus on sectors and technologies, resist over-leverage pressures and hold onto a quality workforce by adopting people-friending practices. But corporate success requires companies to offer products and services that satisfy the customers. Customers will shift to companies who will not only provide the best product at the best price, but products will also have to be of consistent quality. Many of those unable to satisfy customers will become M & A targets.