How transaction advisory services are aiding startups with compliance and M&As

In 2021, India had 975 ‘dead-pooled’ companies or businesses that were no longer in operation. According to a study by Tracxn, the amount has more than doubled to 1,996 in 2022.[1] Indian startups have also seen a 35% drop in funding year over year, falling to $24.7 billion in 2022,[2] indicating that they are operating in a volatile market without reliable disaster management plans. Business owners frequently put off dealing with compliance and regulatory issues out of concern that they will use up all of their limited resources too soon.

This is where transaction advisory services can help. These services are offered by a group of seasoned professionals who cover regulatory compliance with an emphasis on human capital, technology, enterprise risk management, and process excellence for these enterprises, saving them from arbitrary legal processes and the threat of closure.

What are transaction advisory services?

The third-party services sourced from business consulting firms are known as transaction advisory services. They assist new businesses in managing all the duties involved in transactions from beginning to end, serving as the company’s support network and assisting with expansion requirements. Transaction advisory professionals can be helpful during a funding crunch when a company is vulnerable to new risks and challenges.

How do transaction advisory services benefit startups?

A startup can expand quickly through inorganic means such as mergers, acquisitions, and joint ventures. The number of mergers and acquisitions (M&A) in the Indian startup ecosystem in a single year peaked in 2022 with 229 transactions, which was 9% more than in 2021.

The enterprisetech industry experienced 51 mergers and acquisitions, which account for 22% of all M&As in 2022.[3] But managing every aspect of the takeover is essential for the deal to succeed. Investors must carefully, and ideally, with the assistance of experts, assess the management, accounting, tax, regulatory, legal, and cultural aspects of the target company.

By managing each project component and implementing it with a single-minded focus to ensure the success of the deal, transaction advisory firms support the client in this crucial and complex project. They have skilled professionals who can identify any potential tax problems during execution and come up with the most tax-effective solution. Additionally, they help startups understand the tax ramifications of a potential transaction and assist them in planning to sell their business, exit, or raise capital.

Additionally, experts assist these businesses in increasing their EBITDA or working capital levels, which can raise their business valuation or their post-tax deal proceeds. The team leading the transaction advisory services collaborates with buyers, sellers, and private equity funds, including privately-held Indian and foreign funds to help the startups flourish and grow.

Startups creating a fool-proof plan

In contrast to the record-breaking year of 2021 for the Indian startup ecosystem, 2022 was marked by layoffs, closures, pay freezes, and funding shortages. The ongoing conflict in Russia and Ukraine, the resulting geopolitical unrest, and the rise in global inflation had an impact on both the public and private sectors.

In terms of failure, victory, and the maturation of Indian startups, 2022 can undoubtedly be referred to as a historic year. Top investors like Sequoia Capital, Y Combinator, Redpoint Ventures, and BEENEXT have already warned their portfolio companies to cut costs to increase their cash runway as the funding winter is expected to last 12–18 more months.

As a result, startups are now readjusting their priorities by lengthening their runways, pivoting their products in accordance with the needs of the market, and fortifying their business fundamentals. The purchase of smaller companies or startups is likely to increase as businesses look to automate their operations in an effort to conserve cash and launch new services or expand their businesses. Transaction advisory services can assist startups in navigating these issues and assisting with regulatory compliance.

Forecast for 2023

The biggest investment banks in the world anticipate a further slowdown in global economic growth in 2023. This suggests that 2023 will be a year in which many struggling startups with less money will probably exit through mergers and acquisitions.

In terms of industries, some indications suggest that mergers and acquisitions may increase in the fintech, enterprisetech (or SaaS), and ecommerce sectors if investor caution continues to prevent capital infusion given the widespread effects of the slowdown over the last 12 to 14 months. As business challenges rise, using transaction advisory services can help reduce risk and help startups work toward success by overcoming obstacles.