This week we explain how 6 large companies are modernizing their business via start-up acquisitions followed by what’s trending in markets and curated good reads.
Outline
1. Traditional corporates acquiring new-age businesses to keep up their game
Change is the only constant and the industry is now changing faster than ever. Indian business houses are also realizing this need to change. One of the more traditional corporations, Grasim industries, is also going modern. Last week, it announced that it will invest Rs. 2,000 crores over 5 years to build a B2B e-commerce platform for Building materials. The platform will connect end-users with OEM/ MSMEs in segments such as cement, steel, tiles, paints, etc. with the potential to further extend to other relevant categories (chemicals) and leverage the large B2B ecosystem within Aditya Birla Group.
The intent is to take exposure and lead the shift towards the B2B ecosystem especially when key competition such as Infra.Market is reeling from revelations of fraud.
Not just Grasim, we can see many corporates acquiring/ investing in new-age businesses (startups). VC money drying up & startup valuations falling could perhaps be a good opportunity for corporates to buy out these top-notch businesses at discounted valuations.
TRADITIONAL CORPORATES TRYING TO CATCH UP WITH NEW TRENDS👇
You might be aware of many conglomerates engaging actively in acquisitions & Reliance Industries is one of the best examples in this space. It acquired businesses such as Netmeds, Saavn, and Grab under Mukesh Ambani’s leadership.
But there are many other corporates too that are pursuing the same strategy…
So, In this weekly newsletter, we cover examples of 5 traditional companies that are transitioning their businesses via startup acquisitions✨👇
- Coromandel International Ltd
Coromandel, a leading fertilizer company, has been actively investing in the agritech space through its venture capital subsidiary– Dare Ventures. Recently they invested in a biotech startup called “String Bio”.
The company aims to build a strong portfolio of highly transformational startups operating at different levels of the value chain in this industry.
- Dalmia Bharat Ltd
Dalmia Bharat, a leading cement manufacturer acquired a 17% stake in a startup called “Freight tiger” in 2017. Freight Tiger is one of the largest digital freight networks. This is their logic:
ENAM Holdings and Shriram Transport Finance are also invested in Freight Tiger.
- Bajaj Finance Ltd
Bajaj Finance (India’s largest NBFC) acquired a 12.38% stake in Mobikwik in FY18. This partnership is enabling the company to develop front-end applications for its existing users and will provide both debt and credit engagement tools to them.
- Marico
Marico acquired Beardo– Men’s grooming brand in FY20 and now it has crossed the Rs 100cr run rate. It has evolved from being a dedicated beard grooming brand to now a full stack grooming brand (2/3rd+ revenue is generated from non-beard products).
After the company got acquired by Marico, a lot of celebrity associations and increasing offline presence have further reinforced the brand’s persona.
- Facebook (Meta platforms)
Facebook acquired Instagram when it was making no money, and had 13 employees and 25 Million users scrolling through its feed. And HERE WE ARE! Instagram contributes ~50% of total Facebook revenue.
Ever thought about what would have happened to Facebook if it didn’t acquire Instagram?😅
Looking at how all the Gen Zs are shifting to Instagram, I don’t think Facebook would have been “The FACEBOOK” and Instagram would be “THE INSTAGRAM” now, if the acquisition wouldn’t happen.
Uh-huh..but what’s the point here?
Basically, new-age business acquisitions by corporates might work very well. Corporates are realizing that future growth is in going digital. In fact, not just being digital, few of these startups are doing a great job of innovating (solving many problems) & engaging directly with the YOUTH.
One must not forget that the median age of India is ~28 and the majority of the population is either a Genz or a Millenial. So for any business, the majority of the customers are going to be from this age group and the techniques to be used to engage these people have to be very different from what the corporates have been using till now.
But can’t corporates build these products themselves?
Of course, they can, but at times it’s better to save time and buy only those specific businesses whose products already have a good response in the market.
Not just this, the passion, vision, new perspective, enthusiasm, and hunger to create something from the talented team of these respective startups is almost unbeatable✨
How do new-age businesses benefit from this?
Speed of growth in the users/customers is something which is very crucial in any startup initially and when a fundamentally excellent corporate partners with them, startups not only get access to the userbase, but also years of expertise, distribution network, & capital. This can literally take any startup 5 steps ahead of where it was & create value much faster.
Power of startups: There are many cases where startups have acquired traditional businesses: Thyrocare’s acquisition by Pharmeasy, Aakash coaching’s acquisition by Byjus, and PMC bank’s acquisition by Bharatpe💪
Did you know: the concept of “Old meeting the new” is not just limited to the corporate world. Even in reality shows such as Roadies and Masterchef Australia- old contestants were called to pair up with new contestants.
And guess what, the pair which not just had the Old’s- expertise & also the new contestant’s- enthusiasm…won the contest🏆😎
Note: You can also read our previous blogs on why it’s time to be bullish on new-age tech companies and 6 business models that show how India is going digital.
2. What else is trendin’?🤙🏻
✔️ Indian Rupee has lost ~7% of its value in 2022 till now and RBI is prepared to spend $100Bn more to control the rupee’s depreciation👀. But in spite of this, India’s foreign exchange reserves remain the 5th largest in the world.
✔️ Government announced that GST will be levied on pre-packed food items labelled food items like atta, paneer, curd, etc, and hospital rooms with rent above ₹5,000. There are a lot of misconceptions and confusion about this announcement, so to read it in detail, click here.
A lot of discussions are happening by the community on Multipie, such as a snapshot of 77 companies that declared Q1FY23 results, Rakesh Jhunjhunwala’s journey of investing in Titan, and key learnings and reasons to be bullish on Polycab.
You are definitely missing out on a lot if you are not on Multipie yet. So, join the community & become a better investor 😄
3. Good reads 📚
3.1 30 ideas from Seth Klarman’s Margin of safety by Safal Niveshak.
3.2 Charlie Munger on mistakes to avoid in life.
3.3 A thread on a consultation paper released by SEBI on online bond & fixed rate instrument platforms and proposed to regulate it.
See you next week. Until then, happy investing! Join us on Multipie if you haven’t yet by downloading the app by clicking here – for ios, android & web.