As tech biggies look to acquire in India, Dexetra's experience may be a ready-reckoner

It was four years since its founding. The products were doing well in terms of downloads but Dexetra wasn't making much money . “We were techies, we never had a real sales team, and we thought we needed a big partner to take our ideas forward,“ says Narayan Babu, one of the six co-founders of Dexetra, maker of Android apps like Dialapp that's had a million downloads. A consumer company made an offer for acquisition, but Babu and team did not like the terms and the deal fell through. Babu was clear that any acquisition must include the technology and the entire team. “My team is very good and I wanted everybody to remain together,“ he says.

THE MEDIATOR

Meanwhile, Sanat Rao, the California-based co-founder of Indian software product association iSpirt and the person leading the association's effort to look for M&A opportunities between Indian and US companies, had received a virtual mandate from Quixey's head of strategic development and India expansion Soumitra Sharma. Sharma wanted Rao to find an Indian startup with deep expertise, especially in machine learning.The acquisition was also to be a way for Quixey -a search engine for apps whose funders include Eric Schmidt's Innovation Endeavors, Alibaba and Softbank -to establish an India presence. Rao had known Babu for several years and he had always seen Dexetra as a hot venture, both in terms of its IPs and talent. Rao saw a fit between Quixey and Dexetra, and in June 2014, when Babu and his team were at the Google IO conference in San Francisco, he introduced Babu to Sharma.

THE SPONSOR

Sharma, a DPS-Vasant Kunj and IIT-BHU alumnus, was instantly impressed by the team and its products. But he needed a top executive in the company to be a sponsor for the team, take ownership of the acquisition decision. So he took the matter up with K Guru Gowrappan, Quixey's COO and head of product and marketing. Gowrappan, a Madras University graduate who worked at Zynga prior to Quixey , agreed to meet. Babu extended his US stay and met Gowrappan and others at Quixey .

THE ACQUISITION CALL

Within two weeks of Babu's return to India, Sharma called to say Quixey would like to acquire Dexetra. Quixey wanted both the technology and the entire team. Babu and co-founders liked the idea of being part of a Silicon Valley-based company . “We thought it would be good learning for us,“ Babu says. By August the team was more or less clear they would be part of Quixey .

THE VETTING

Quixey's team came to India, looked at the team and the products, checked if the architecture was scalable, checked to see if they weren't using too much open-source codes, and spoke to customers. The financial due diligence looks at all of the company's finances, including things like whether customer contracts are genuine. The legal due diligence looks at, among other things, whether the company has given any commitments to others that may impact the deal. “There are instances where a startup may give another company access to its source codes, or commit to a payment to, say, an accelerator if an M&A happens,“ Sanat Rao says. For QuixeyDexetra, the financial and legal due diligence took two months.

THE INVESTORS

Rao says it is not always easy to satisfy all investors in the company being acquired. In Dexetra's case, there were three external investors -Qualcomm Ventures, Sequoia Capital and One97 Mobility Fund. Often, investors lay down conditions when they invest like a guaranteed minimum payout at the time of an M&A -and subsequent investors may not be fully aware of these conditions. But these come up at the time of an exit and create conflicts. In Dexetra's case though, this process was smooth.

THE DEAL STRUCTURING

Babu says structuring the deal was complex because Quixey was an overseas entity without an India presence, and, among Dexetra's investors, Qualcomm was based in the US, Sequoia in Mauritius, and One97 in India.“We were selling shares to an outside entity, forex was involved, and there was the question of who would absorb things like forex charges,“ he says.

THE ZOMBIE STATE

From around August, when the acquisition looked likely , to December, when the deal closed, Dexetra was in a zombie state. “We did not want to put in much effort since we thought we would be going to Quixey and then they would determine the agenda,“ Babu says. This could become a big problem in cases where the acquisition does not finally go through.

THE WEALTH MANAGERS

Babu says the moment there was a leak about the acquisition, “HR folks came to hire our people, and wealth managers came congratulating us and offered to manage our wealth.“ That, for many, could be a pleasant experience to deal with.