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M&A in Tech Industry – Emerging trends in a post-pandemic world

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M&A activity in the first six months of 2021 hit an all-time high with deals worth more than US$2.6t. More than half of the activity was recorded in North America, which saw deals worth US$1.4t (up from US$345b in H1 2020) Asia-Pacific region saw M&A values of US$446b, a jump from US$222b in H1 2020, and an increase from US317b in 2015-2019. Europe followed, recording US$412b, up from US245b in and exceeding the H1 2015-2020 average of US356b.

Despite a drop in the total number of deals disclosed, a surge in billion-dollar deals, with 479 announced so far this year, has been the main driver of activity. Even though many sections of the global economy are still restricted, cross-border transactions have made a strong comeback, rising to US$688 billion in H1 2020 from US$236 billion in H1 2019, well above the average of US$480 seen in the five years before the COVID-19 epidemic.

Andrea Guerzoni, EY Global Vice Chair – Strategy, and Transactions, says: 

“Dealmakers are operating in a once-in-a-lifetime market” EY Global Vice Chair – Strategy and Transactions, says: Dealmakers will always be on the lookout for innovative funding solutions The recent increase in larger PE deals and examples of collaboration within PE firms point to deals getting off the ground with an open mind when it comes to financing solutions.

Optimism drives activity in North America and Europe, domestic deals power M&A in China

When it comes to outbound and incoming transactions, North America and Europe are the most active regions. The United States leads the list of countries with the most outbound transactions, with $221 billion in H1 2020. Canada is second, while the Netherlands and Ireland are the outbound M&A front-runners, with US$53 billion from an average of US$21 billion from H1 2015 to H1 2019.

Inbound M&A is increasingly focusing on the United States and the United Kingdom. Inbound transactions in the United States increased by more than 250% in H1 2020 (to US$200 billion), and by 60% in the five years before the pandemic (to US$125 billion). Meanwhile, China’s domestic dealmaking is at an all-time high, with M&A value exceeding US$197 billion so far this year, eight times that of foreign-invested agreements.

Guerzoni says, “North America, in particular, the US, and Europe appear poised for above-trend deal activity. In China, the economic strategy to boost domestic demand amid tensions with the US is creating a hotbed for domestic M&A. The technology, consumer, and logistics sectors are dominating on the back of the e-commerce boom kickstarted during the COVID-19 pandemic.”

New media landscape and ESG-related acquisitions drive sector activity

In 2021, the media and entertainment industry saw some of the most significant transactions. When compared to the pre-pandemic average, technology-related transactions have increased by more than 161% (to US$783 billion). M&A activity in the renewables sector has nearly tripled since H1 2020, as CEOs seek to leverage mergers to satisfy aggressive environmental goals. The value of these environmental, social, and governance (ESG)-related transactions has increased from $35.7 billion in the first quarter to $96.5 billion in the second.

The media and entertainment industry is exploding as companies seek to combine and complement their capabilities to position themselves in this new direct-to-consumer content delivery model. 

According to Esmerelda Guerzoni, “With many CEOs and investors pledging to adapt their current and future deal strategies with sustainability and long-term value generation, ESG is increasingly becoming a fundamental aspect of investment decisions.”

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The story of Tiktok and beyond

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The story of Tiktok as social media apps

As social media apps like Facebook, Instagram, and Twitter were staying strong in the digital age, TikTok seemed to appear out of nowhere to share the thunder with the social media giants mentioned earlier.

TikTok is an entertaining, addictive app that managed to win over the hearts of people, mainly the youth. It is a short-form video platform, has perhaps become the hottest app ever as it has over 2.3 billion all-time downloads. The growth of TikTok has been exponential.

Right after the collaboration with Musical.ly, ByteDance launched TikTok. It instantly got the reception that was expected to reach around 800 million active users. Not just the youth but people from all age groups made it on TikTok. It was also known for the creation of jobs, as “influencers” made huge profits online.

TikTok in India saw a huge rise in the number of users (over 200 million). But just when TikTok was expanding in India, India’s long-time dispute with China seemed to be ignited again. In a move that month befitting Prime Minister Narendra Modi’s “Make in India” initiative, the Indian government removed 59 Chinese-made apps, TikTok among them, citing national security concerns.

Left reel-ing

Not only was Tiktok hit hard, but also the influencers lost a majority of their livelihood. There were petitions, protests to bring TikTok back but none of them worked. Suddenly, 200 million people had to live in a post-TikTok era. Many apps like MX TakaTak, Josh, Roposo, etc. tried to replace TikTok in India, but could not create the impact TikTok did. After that, social media giants like Instagram and Facebook decided to quickly take the stage and launch ‘reels’ which did have a significant impact on the TikTok audience but failed to connect with the ‘hinterland’ part of India like TikTok.

There is also the grisly undertone of ‘classism’, as TikTok succeeded not just because of the content on it, but who was on it. Even as Facebook, Instagram, and the likes were flooded with users from urban India, TikTok gave India’s hinterland creators a voice. Once it went dark, these erstwhile TikTok users faced a deluge of criticism, outright hate, and a much reduced fan following. Even as the Indian audience continues its search to find the right successor of TikTok, many look forward to TikTok’s return with bated breath.

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Credit cards for India’s unbanked, now a reality

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Credit cards are an excellent way to build credit and make important purchases when cash is a bit tight. However, not everyone has access to a credit card, and this is particularly true in India, where financial inclusion remains a challenge. Across India, approximately 400 million people cannot “afford” a credit card, leaving them out of the financial mainstream and without access to a critical financial instrument. One startup, named GalaxyCard, provides a digital credit card specifically to these low-income individuals overlooked by others. And they issue these cards within 3 minutes. 

This FinTech startup ties up with multiple channels like UPI, in-app services, and even offline. Around 1 lakh digital cards have been issued until now, with annual revenues touching Rs. 1 Crore.

Amit Kumar, who previously founded the mobile-based payment application firm Eashmart, which was eventually bought by PayUMoney in 2014, co-founded GalaxyCard with his friend Gunjeet Singh. The latter was closing down his own logistics firm Truckload at the time, after repeated stints as a product manager.

How does it work?

The income model of the firm is comparable to that of a traditional bank, but with smaller ticket sizes. The credit limit lies within a minimum of Rs. 1,000 and a maximum of Rs. 25,000. A user can begin with Rs. 1,000, and when the system collects additional information (such as how the money is spent, repayment time, overdue, other sources of income, dependency, and so on), the limit rises to Rs. 5,000, then Rs. 25,000, but remains below the user’s total steady income. The ‘bump up’ is based on the user’s financial situation, and it is thoroughly scrutinized by the platform to keep dangers of default to a minimum. 

As fintech rises exponentially, companies tend to change their business model as technology and requirements evolve. If India’s digital banking ecosystem is to grow, it must look beyond the pool of users in urban cities, and bring in those within India’s hinterland to its fold. GalaxyCard is an interesting solution to a long-time problem faced by the unbanked, and could well solve rural India’s credit conundrum. 

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CoinSwitch Kuber: The story of India’s largest crypto exchange

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The growth of Cryptocurrency over the years has been astronomical. People are now tempted to take their first steps into the world of crypto. To make trading, investing, and knowledge of crypto easier for people, three engineers, Ashish Singhal (CEO), Govind Soni (CTO), and Vimal Sagar (COO) launched ‘CoinSwitch Kuber’ in 2017. This began the journey of a platform that is now home to over 11 million users.

In early 2018, the Reserve Bank of India (RBI) issued a policy that did not allow the banks to support crypto transactions that forced the three founders to spread their idea outside India with the VC, Sequoia Capital funding them in the seed round. But soon in early 2020, their dream of shedding light on the digital currency in India came true as the Supreme Court of India overturned RBI’s policy. ‘CoinSwitch Kuber’ was then introduced to the people of India.

Ashish defines simplified User Experience (UX) and the decision to not provide the users with some trading features as the two factors that helped the platform overtake other coin exchanges.

CoinSwitch recently suspended crypto withdrawals for its users due to lack of clear rules concerning the currency. Clarifying the move, Ashish says, “This was perhaps the hardest call we had to take. But regulators are worried about crypto being used as legal tender and hurting the sovereignty of the Indian rupee. Further, they are worried crypto can be used for money laundering and other illicit activities. So far, no one has figured out how to stop it, but disabling crypto withdrawals in a stopgap measure till the right policies come in place.”

Talking about the future, the founders aim to transform this app into a full-time investment platform with crypto and traditional financial instruments available for everyone. Praising the investors such as a16z, the founders hope that the Indian government defines the rules around crypto better, and compartmentalize virtual currencies based on their use cases and not prohibit it in upcoming legislation.

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