Startups take acquisition route to plug gaps

A number of young, impatient companies still raising funds from venture capital investors are acquiring smaller firms to plug gaps in their businesses and ramp up fast.

ValueFirst Messaging Pvt. Ltd, an enterprise communications firms that earlier this year raised `70 crore from investors in its second round of funding, is in advanced talks to buy three firms, including a foreign one.

It will invest $18-22 million (around `80-100 crore) in these by the end of the year, said chief operating officer Kumar Apoorva. “We want to expand inorganically. With buyouts of companies, we can grow much faster than the current 60-70% year- on-year growth. With the acquisitions that are in the process, we would grow (at) 120-125%,“ he said, adding acquisitions can help ValueFirst go for a public share sale in 15-18 months rather than in three years.

ValueFirst, he said, has at least `100 crore of cash in hand for its expansion plans.

Last week, Bangalore-based mobile ad Network Company InMobi, which is backed by investors Sherpalo Ventures and Kleiner Perkins Caufield and Byers, bought US-based Sprout, which provides platforms for creating and distributing advertisements on mobile phones.

Earlier this month, shopping site HomeShop18.com bought online books retailer Coin- joos.com to add books to its list of products. And in July, online ad network and audience measurement firm Komli Media acquired ZestAdz, a US-based mobile ad platform. “For these companies, the next level means experimentation into new lines and concept-level changes that can be helped through acquisitions,“ said Mukul Singhal, vice-president, SAIF Partners, an early- to late- stage investor. Acquisitions are key especially when young firms do not have the bandwidth to explore new geographies or product categories and offerings on their own as their short- term goals keep them busy, he added. ValueFirst, for instance, is scouting for acquisitions to both expand its product portfolio, particularly in the email and voice categories, and enter international markets. “Currently, 95% of our revenues are from India. We want to go beyond India, in markets like the US, but we don't want to start from scratch globally”, said Apoorva, whose eight-year-old firm has already made three purchases.

For HomeShop18, the determining factor for its Coinjoos purchase, it first, was the gap in its product portfolio, said chief executive Sundeep Malhotra.

More acquisitions may be in the offing to add products such as baby foods and expand its men's formal wear and lifestyle categories, he said. HomeShop18 is raising `100 crore from exiting investors, including SAIF Partners, to scale up its logistics, warehousing and technology platform. It will consider another round of fund-raising in two months, he said. SAIF's Singhal said acquisitions are not necessarily a tool to facilitate quicker exits. “Definitely, the aspiration is to scale up faster and reach a level conducive for exits’, he said. “This, however, does not mean that we believe an exit can be made six months after the acquisition”.

(Source-: mintlive.com)