Bolt-On Way To Scale

Acquiring companies for products, services, technology or intellectual property to enhance efficiency of their own various business functions and obtain a distinct comparative advantage at a much cheaper cost than doing everything organically has become the go-to route for acquirers.

- Sandeep Soni

Acquisition strategies for an acquirer company are broadly twofold – one, shaking hands with a competitor, directly or indirectly, irrespective of its size and growth, to expand its market share; and two, with companies that have a product or service or technology or intellectual property. The latter deals, jargoned as tuck-in or bolt-on acquisitions are the de facto type in today’s mergers and acquisitions (M&As).

Out of 146 M&As in 2016 worth $881 million in the local start-up world reported by The Fourth Wheel 2017 - the private investment report by accounting and advisory firm Grant Thornton India - a decent chunk reflected on the rise of such bolt-on deals where early to late stage technology enterprises gobbled start-ups. It helped them either to add value or revive  business functions which are not their areas of strengths.

Lean on Growth

From traditional businesses, the strategy has been dispersed across e-commerce and technology start-ups in their spirit to build leaner and more cost efficient businesses. The brightest examples of such deals include Flipkart-Myntra, SnapdealFreeCharge, Quikr-CommonFloor where the former picked the latter to bolster its business verticals or to leverage it to boost its core business. “The most obvious benefit for the acquirer in a tuck-in or bolt-on acquisition is the delta that can be achieved on the cost savings over a period of time as compared to building that same vertical, the tangible and intangible elements thereof in terms of human capital, creation of multi-geographic presence, complimentary service verticals, opportunity costs and implementation aspects,” explains Vinayak Burman, Managing Partner, Vertices Partners – Mumbai-based boutique law firm - having practice areas including M&As, joint ventures, private equity and venture capital funds.