How ego and lack of mutual respect make most of startups’ M&As irrelevant in India

Merger and acquisitions often evolve as two companies eye to consolidate competition and combine resources to emerge as the market winner. Globally, the acquisition such as WhatsApp by Facebook is a fine example of how companies can become more powerful. Meanwhile, many acquisitions and mergers also fail due to several reasons.

Several M&A also happened in Indian startup ecosystem, however, only handful of them fructified.

Let us explain. Flipkart had acquired Letsbuy.com in 2012. Later, it killed the brand and the ecosystem took no time to forget it. Snapdeal had acquired Freecharge, Shopo, and a few others. However, none of the acquisitions worked in the favour of the SoftBank-backed venture.

At the time of acquisition, Snapdeal referred Freecharge as a crown of Snapdeal. But the so-called ‘crown’ turned out to be a disaster for the Gurugram-based company. Snapdeal bought Freecharge for about $400 million (stock plus cash). Last year, the beleaguered online marketplace sold out the payment unit to Axis Bank for a mere $50-60 million.

Similarly, Fashionandyou had acquired Urbantouch in 2013. Sadly, the acquisition turned out to be a bad move. Latter’s founder Abhishek Goyal allegedly accused Fashionandyou of many things. Meanwhile, Taxiforsure acquisition by Ola was largely driven by investor and not because of synergies.

Soon after the acquisition, Taxiforsure founders and key employees moved from the joint entity.

Recently in one of the largest M&A, travel major MakeMyTrip merged with its arch-rival goibibo. Both companies were at loggerheads and used to bleed heavily to win the same set of customers.

The acquisition was touted as a pivotal moment in OTA and online hotel booking segments. However, the merger seems to have not worked out. There were various rifts which came up just after the two entities merged in October 2016.

Following the differences, Ashish Kashyap moved from the MakeMyTrip-goibibo joint entity.

Why most of merger and acquisitions fail in India?

The most important reason is the clash of ego between the merged or acquired entities. “Unlike the West where M&A happen when founders see strong synergy, Indian startups often get consolidated as smaller companies are found to be in a shoddy or dying state. In such a scenario, the acquired companies tend to receive a cold response from the acquirer,” says one of the founders whose company got acquired by a larger entity.

Mutual respect for each other is pivotal for the success of any merger or acquisitions. However, if you talk to founders of startups who got acquired with relatively larger setups, you realise that for them, working in joint entity turns extremely difficult. “Overnight company loses independence, its DNA and most importantly the vision,” explains another founder whose company consumed by an e-commerce major.

Founders, as well as employees of a smaller entity in merger or acquisition, are usually ignored.

The above-quoted founder asks an important question, how many founders continue working with joint entity till the merger or acquisition contracts mature? In fact, it’s rare that founders continue with a joint entity. “Ego clashes become daily affair as the larger company sees the smaller one unimportant,” adds the above founder on condition of anonymity.

When it comes to successful M&A, there are a few examples. Undoubtedly, Myntra and Citrus are the great examples. These acquisitions worked out as acquirers - Flipkart and PayU have given them needed independence to operate and allowed them to intact their DNA and vision.

Observers expect a slew of consolidations this year and it would be interesting to watch whether fresh M&As will emerge on the back of strong synergies or follow the same mindset.