International Startup Acquisitions The Next Frontier For Indian Startups Experts say that acquiring international startups allows Indian businesses to establish a strong foothold in new regions and leverage the acquired company's existing customer base and distribution channels

On one hand, digitization has made India a lucrative market for global companies, on the other, international expansion seems to be the natural progression for Indian startups. And, that is why many Indian startups today are acquiring startups outside India.

Startup experts say that acquiring non-Indian startups allows them to establish a strong foothold in new regions and leverage the acquired company's existing customer base and distribution channels. Enterprise tech, AI and SAAS companies have been actively engaging in significant acquisitions to gain access to international sales. Some such names include:

• Capillary Technologies' acquisition of Brierley+Partners and Digital Connect
• Betterplace' acquisition of MyRobin, TROOPERS
• Mindtickle's acquisition of Enable US

Consumer-facing companies are acquiring foreign brands to tap into different demographics in India and expand their presence in foreign markets. Some examples include

• Lenskart's acquisition of Owndays
• Purplle's acquisition of Faces Canada
• 5C Network's acquisition of Krayen

Overall, software, e-commerce, fintech, healthcare, biotech, renewable energy, cleantech, media and entertainment, edtech and telecom are the key sectors going in for acquisitions outside India.

The maturing startup ecosystem

The trend can be attributed to several factors. One and the most obvious, as mentioned above, is global expansion and market access. "Indian startups, especially those in the tech sector, are increasingly looking to expand their presence globally and gain access to international markets. Second is the access to technology and intellectual property. International startups possess advanced technologies, patents, or intellectual property that can give Indian startups a competitive edge also accelerating product development and innovation," Somdutta Singh, founder and CEO, Assiduus Global.

The trend is also driven by the growing confidence among Indian startups. "The availability of capital, and a move toward innovation-driven strategies adopted by the startups is a key reason," said Ankur Bansal, co-founder and director, BlackSoil.

Experts also believe that SaaS companies targeting international expansion use this route to establish a footprint in advanced economies for client acquisition and fundraising purposes. "Previously, many of these companies were incorporated outside India, but with the increased support of domestic investors and initiatives like the GIFT city, they now raise funds in/from India and set up or acquire foreign companies to enhance their clientele and sales function," said Aparna Pittie, principal, Artha India Ventures.

Acquiring a foreign startup also means gaining access to a pool of talented individuals with diverse skill sets and showcases financial strength and investor confidence. "With a stronger financial position, they can afford to explore and execute international acquisitions. And, supportive government policies, tax incentives, and regulatory changes in India are also encouraging startups to explore international acquisitions as a growth strategy," said Singh.

The complexities

While the trend showcases the growth of the startup ecosystem, acquiring a foreign startup can be more challenging than acquiring a homegrown startup. "It involves foreign legal complexities, cultural integration, and market dynamics. Navigating through foreign legality, managing cross-border operations, and cultural assimilation thus becomes challenging," said Bansal.

Moreover, merging teams from different countries with varying work cultures may also require additional efforts to foster effective communication and collaboration. "Acquiring a domestic startup means dealing with a market and customer base with which the acquiring company is already familiar. In an international acquisition, the acquiring company may need to invest more time and resources to understand the foreign market, customer preferences, and local competition," said Singh.

Additionally, when evaluating a foreign acquisition, several macroeconomic factors come into play, including the ease of doing business in the target country, the tax regime, political and economic stability, and cultural differences. "Further, business-specific issues like whether the same business model can be replicated in the target country or whether the product needs to undergo any significant modification to cater to the new market. If not, identify a path to reach product market fit. The target country may not have the exact same problem statement that the product/service solves in its parent country. The local supply chain and the existing partnerships of the target company should be vetted for smoother integration and faster value accretion post-acquisition," said Pittie.

Fluctuations in exchange rates between the countries involved in the acquisition can also impact the deal's financials. Poor integration planning can lead to inefficiencies, redundancies, and loss of key talent. Incompatibility between systems can result in operational disruptions and decreased productivity.

Thus, assessing the financial viability and compatibility of both companies is essential to ensure a sustainable and profitable integration, says Somdutta Singh, founder and CEO, Assiduus Global and lists out things to do to mitigate these challenges.

• Companies need to conduct thorough due diligence
• Create a well-thought-out integration plan
• Involve experienced professionals in the acquisition process.
• Effective communication and transparency with all stakeholders, including employees, customers, and investors