CXOToday has engaged in an exclusive interview with Shashwat Kumar, Founder and Managing Partner, Khetal Advisors
- What are some of the primary factors driving the growth of SaaS sector in India?
India has emerged as the second largest SaaS ecosystem globally after the US. Indian customers have started embracing SaaS solutions. Earlier, SaaS vendors used to only think about selling in western markets and since selling in western markets is an expensive proposition many SaaS vendors were not able to fulfil their growth potential. With Indian enterprises adopting SaaS solutions, SaaS vendors are able to generate meaningful revenues and product market fit before venturing overseas.
Indian SAAS vendors have a strong price advantage compared to their western competitors. This is similar to what happened in IT services, where Infosys, Wipro and Patni had a strong advantage compared to their western competitors and were able to win market share from them.
- How significant is the role of AI and innovation in this growth?
Artificial intelligence (AI) is playing a transformative role in the growth of the Software as a Service (SaaS) sector in India, despite being a new concept. By leveraging AI, Indian SaaS companies are beginning to deliver highly personalized customer experiences, automate routine tasks, and provide advanced analytics and insights. This integration enhances operational efficiency and drives innovation, making Indian SaaS offerings more competitive on a global scale. The adoption of AI enables rapid scalability and improved service delivery, positioning India as a major player in the global SaaS market.
- How are AI-driven business models influencing M&A activity in the Indian SaaS market?
The incorporation of advanced technologies like AI, machine learning, and big data analytics is revolutionizing the sector by fostering innovation and enhancing efficiency. Indian SaaS firms leverage cloud computing to deliver scalable and cost-effective solutions, streamlining operations and improving customer experiences. This widespread adoption of digital tools accelerates enterprise digital transformation, increasing agility and competitiveness. These technological advancements boost operational efficiency and create new growth opportunities, positioning Indian SaaS companies as global tech leaders. This evolution also drives M&A as firms integrate innovative capabilities to stay competitive.
Indian SaaS companies are starting to get good scale. There are lots of companies in India which are greater than 5 million USD in ARR. Hence, they have become a lot more attractive from an acquisition perspective.
Global SaaS companies are realizing the importance of having a strong offshore presence. This is similar to the IT services industry where global companies in IT services (like IBM, Accenture, Capgemini etc) build their offshore centres. For these global SaaS companies looking to set up a presence in India, the M&A becomes the fastest route.
- What competitive advantages do Indian SaaS firms offer in the international market?
When an enterprise customer adopts a SaaS solution, a significant portion of the solution cost is attributed to continuous support and enhancement. Indian SaaS firms are much more competitive in terms of pricing compared to their global peers. Additionally, Indian SaaS companies are leading in innovation, creating top-tier products that meet international standards.
- What are the key differentiators for SaaS companies that make them attractive acquisition targets?
Indian SaaS companies are achieving significant scale, with many surpassing $5 million in annual recurring revenue (ARR). This growth enhances their attractiveness for acquisitions. Besides, global SaaS firms recognize the strategic advantage of establishing a strong offshore presence, similar to the IT services industry, where giants like IBM, Accenture, and Capgemini have built offshore centres. For these global SaaS companies, M&A in India offers the fastest route to establish and expand their footprint in this burgeoning market.
- What role has Khetal Advisors played in the growth of M&A activity in the SaaS sector and your views on its future outlook?
Khetal Advisors is a tech focused investment banking firm. We conduct detailed SWOT analysis of our clients and identify a broad list of potential acquirers. In parallel, we also develop a detailed business model, Info Memo which describes our client business in a comprehensive manner and thereby saving management bandwidth in explaining their business to potential acquirers. Leveraging our network and global sales team, Khetal reaches out to these potential buyers and generates interest among potential buyers. We then completely handhold the M&A process right from negotiating the offer to helping in due diligence and then transaction closure.
M&A activity in the SaaS sector is expected to grow over tenfold in the next 10 years. Earlier global SaaS vendors viewed India primarily as a source of low-cost engineering talent. Now, they have seen India’s market potential and have become interested in establishing a base here. Once they have a base in India, these global SaaS players can expand to nearby geographies like South East Asia or EMEA, where the pricing power of their solutions remains competitive and is comparable to India.
The post The Incredible Rise of the World’s Second Largest SaaS Ecosystem: M&A Activity Drives Growth in India’s SaaS Sector appeared first on CXOToday.com.