In the last decade, our country has seen an overhaul in its legal and regulatory structures. India has seen a friendlier and a more transparent atmosphere for entrepreneurs and small and medium-sized enterprises. Additionally, more and more sectors have opened for FDI, which has amplified the competitiveness in the economy. The last 36 months have especially been interesting for Mergers and Acquisitions related activities.
Or have they?
With US$64bn worth of deals, the mergers and acquisitions activities in India hit a record high surpassing all previous records in the year 2016 set since 2001. With Axis Bank acquiring Freecharge from Snapdeal for $60 million after Snapdeal bought out Freecharge at an estimated $400 million in 2015; Ola closing-down Taxi For Sure in August 2016 after acquiring it for $200 mil, PayU acquiring Indian payments tech company Citrus Pay for $130 million in 2016, Jabong being bought by Flipkart owned Myntra for $70 mil, Tata Motors acquiring Jaguar Land Rover for $2.3 billion, MakeMyTrip acquiring GoIbibo for approximately US$ 2bn, it seems like larger companies are resorting to innovation through acquisition strategy.
Surprisingly, different studies have put the rate of collapse of these buy outs between 50% and 90%, with most of them claiming it to be between 70% and 90%. Take, for example, the acquisition of WhatsApp. Facebook acquired the company for a basic reason – to utilize the chat technology on its social media platform to bolster its existing messaging application, which, then, lagged WhatsApp in the smartphone market. But what was inevitable was Facebook leveraging WhatsApp’s own user base, currently more than a billion, to promote its social media offering. But either way, the integration of Facebook with WhatsApp was the main goal and the value driver instead of some pioneering technological development in the chat space itself.
That doesn’t mean that all acquisitions are bad or that our biggest companies don’t move us forward technologically, but if the speed of acquisition by major players continues, it could compress the market to such an extent that innovation will become the sole domain of a handful of firms who, for the most part, with only finance targeted research that promotes their own purpose, and use patents to prevent others from advancing that technology in other directions. That may be a win for commerce but not necessarily for the type of unexpected discoveries that we’d want our kids to experience in their time.
Charles Leadbeater, a leading authority on innovation and creativity, has advised an impressive range of organisations on innovation including the BBC, Vodafone, Microsoft, Ericsson, Channel Four Television and the Royal Shakespeare Company, and has been an ideas generator in his own right.
In his TED Talk, he talks about the importance of open innovation and how such an open environment turns users into producers, consumers into designers. In this age where budding entrepreneurs(who are also a big part of the consumer side of the equation), are hell bent at solving the problems this world faces, with innovation at its core, consolidations that come at the expense of innovation, become toxic strategies for the economy in the long run. While big players like Apple and ABC who are leaders in innovation are crushing their competitors, the number of “lone geniuses working from their garage” to give us another first of its kind product are getting lost in translation(read acquisition).