When it was announced in August 2021, the $4.7 billion deal ( ₹38,251 crore at today’s exchange rate) would have been the second biggest acquisition of an Indian technology startup after Walmart’s 2018 acquisition of online retailer Flipkart for $16 billion, and by far the biggest in India’s booming fintech space, which has seen the world’s funding majors beat a path to India’s door.
Fintech has been the hottest sector in India’s burgeoning tech start-up landscape, with even the pandemic barely denting inflows. The sector saw $8.53 billion in funding in FY 2021-22, across 278 deals. Between 2017 and now, Indian fintechs have gobbled up $29 billion in funding, accounting for 14 per cent of global venture funding. The cash has also come at spectacular valuations. As of July this year, India had as many as 23 unicorns in the fintech space alone.
With EY predicting the sector to hit $1 trillion in throughput and $200 billion in revenues by 2030, PayU’s acquisition of BillDesk, which would have given the merged entity a predominant share of the Indian payments ecosystem, was seen as a coup, despite the steep valuations. However, a report by Chiratae Ventures and EY on the India fintech opportunity lists several reasons why investors were happy shelling out the sky-high valuations in this space, including a large untapped market, product and business model innovation, the future potential to generate “outsized returns" and, in the venture capital stage, the degree of conviction funders have on the execution potential of a team, and the founders.
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BillDesk ticked all these boxes. It was an early mover and has consistently innovated to maintain its leadership position. It has, according to market estimates, anywhere between a quarter and a third of India’s booming payments ecosystem, with PayU, the intended acquirer, lying in third place with about 15 per cent share. Together, the merged entity would have enjoyed a near-unbeatable 50 per cent share of the payments landscape. BillDesk founders M.N. Srinivasu, Karthik Ganapathy and Ajay Kaushal have been with the company since inception and played the key role in building it into the market leader. And BillDesk, unlike most other unicorns in India’s start-up space, was both large and profitable, with gross revenues of over ₹2,100 crore last year.
Of course, the potential dominance of the merged entity had posed the biggest question mark over the deal, but the last — and biggest roadblock — clearance from India’s competition watchdog Competition Commission of India, was also obtained on September 5, If only minor conditions were remaining, PayU could have easily agreed to extend the ‘long stop’ date of September 30 if it was actually keen to go ahead with the deal.
So why did PayU back off from a deal which would have handed it more than a decade’s organic growth overnight and made it the undisputed market leader? Blame Byju’s and PayTM. And some singularly bad timing: PayTM’s spectacular collapse after listing — at current prices, investors have lost over 70 per cent on the issue price of ₹2,150 per share. This has also meant a rerating of all fintech players.
The ongoing troubles at Byju’s, India’s second most valuable tech start-up after Flipkart and by far the most highly valued among recent unicorns, have accentuated the funding winter for startups across the board. With Byju’s struggling to close its accounts — and exposing many lacunae and dubious practices when it finally did — other start-ups have also been singed by the fallout.
The bad timing is courtesy Credit Suisse. The Swiss lender, with more than $1.6 trillion in assets under management, has nosedived. While its stock has lost more than 60 per cent in value since the start of 2022, its credit default swaps have surged to a 14 year high, bringing uncomfortable reminders of the collapse of Lehman in 2008 and the ensuing global financial crisis. The Credit Suisse flame-out has also rerated the finance sector globally — in fact, its current market cap of $11.3 billion places it at just 140 per cent of the BillDesk deal!
While media reports suggest the two will duke it out in courts over the legality of the last-minute cancellation of the deal – by allowing the deal to collapse on its own, PayU and Prosus have avoided penalties for failing to honour the agreement — BillDesk is clearly the loser. While PayU will only have to continue ploughing its own furrow, BillDesk, which likely put major initiatives on hold during the year that the deal was cooking, will have to go back to the drawing board.
Elsewhere in Mint
In Opinion, Nouriel Roubini says the stagflationary debt crisis he had predicted is here. Vivek Kaul writes on the price we pay for over-printing of money. Deep Mukherjee points out a risk posed by fintech operators. Long Story unveils the promise and perils of Ameerpet.
