Tech Deal Volumes Grow In Q2 2024, But Values Decline Sharply
The average deal size decreased from USD 9.8 million to USD 6.4 million
Deal activity in India’s Technology sector saw an overall volume increase of 9 per cent in Q2 2024. This number grew from 69 in Q1 to 75 in Q2, although deal values saw a sharp decline of 29 per cent, falling from USD 678 million to USD 483 million.
The average deal size decreased from USD 9.8 million to USD 6.4 million. Despite this, global IT spending is projected to grow by around 8 per cent in 2024, with India’s IT spend expected to rise by nearly 19 per cent, suggesting strong future growth potential, as per Grant Thornton Bharat report.
M&A Downturn
In terms of mergers and acquisitions (M&A), the space experienced a downturn, with Q2 recording 18 deals valued at USD 38 million, registering a 10 per cent drop in volume and an 83 per cent drop in value compared to Q1. Domestic consolidations dominated this quarter, capturing 67 per cent of total deals, shifting away from the previous four quarters’ cross-border deal dominance.
The value of M&A deals was notably low, the second-lowest since Q1 2023, due to 72 per cent of deals not disclosing transaction amounts and the absence of high-value transactions. Cross-border activity saw a significant reduction, with a 45 per cent decrease in volume and a 95 per cent decline in value compared to the previous quarter.
PE Rises In Q2
Private equity (PE) activity in Q2 2024 saw a decent rise with 57 deals worth USD 445 million. This is the highest deal volumes since Q3 2022. However, there was a quarter-on-quarter (QoQ) decline in deal values since Q4 2023, pointing to a trend toward smaller investments.
Smaller disclosed deals under USD 7 million constituted 70 per cent of the total PE deals for the quarter. PE volumes have been increasing since Q3 2023, reaching their highest in two years.
“The small ticket deals dominated the private equity activity, indicating cautious yet strategic investment approaches. This trend is likely to persist until the US and UK elections, after which a decline in interest rates is anticipated, further boosting investor confidence in high-quality businesses,” noted Raja Lahiri Partner and Technology Industry Leader, Grant Thornton Bharat.
Technology startups led the PE activity, making up 60 per cent of volumes and 57 per cent of values, with the enterprise software/SaaS segment contributing to 30 per cent of the volumes. Tech service providers ranked second in terms of values with a 28 per cent share worth USD 125 million.
IPO activity was notably subdued in Q2, with no significant entries compared to the two IPOs each recorded in the last three quarters. However, QIP activity witnessed two issues totaling USD 315 million, led by Coforge, which raised USD 270 million.
Decline In Tech Startup Deals
Technology startups experienced an 8 per cent decline in overall deal volumes compared to the previous quarter, but deal values increased by 39 per cent.
M&A transactions were limited to a single deal, while PE transactions made up 97 per cent of the volumes, showing a stagnation from the previous quarter. Early-stage investments comprised nearly 43 per cent of deal volumes.
Despite increased funding, no new unicorns emerged, with Perfios and Krutrim AI being the only companies to achieve unicorn status in 2024. B2B startups dominated PE deal activity, accounting for 74 per cent of volumes and 51 per cent of values in Q2 2024. Avail Technologies secured USD 70 million in funding across two rounds to enhance product development and global expansion.
The technology service providers segment saw a 54 per cent increase in deal volumes and a 7 per cent rise in values compared to Q1 2024. Investcorp’s acquisition of a 100 per cent stake in NSEIT Limited for USD 120 million was the most significant deal, accounting for nearly 79 per cent of the segment’s total values. The segment is seeing increased acquisitions among small and mid-size firms adopting new technologies and business models.
Enterprise-SaaS
The enterprise software/SaaS segment recorded 20 transactions worth USD 79 million, showing an 11 per cent increase in volumes but a 78 per cent drop in values due to the non-disclosure of deal values and smaller transactions.
Future trends in this segment include AI, ML, cloud computing and cybersecurity, driven by ongoing digital transformation efforts. Indian companies are increasingly finding the local market more suitable for IPOs compared to the US, noted the report.
