D2C cos find new homes in funding winter

“Large, traditional companies are realizing that they are missing out on the fast-growing D2C space, and the millennials or ‘consumers of tomorrow’. Therefore, they are looking to grow in this segment via organic and inorganic means. Acquiring D2C startups gives them access to digital capabilities, new-age brands, as well as a team,” Abha Agarwal, executive director and co-head, consumer financial institutions group, and business services, Avendus Capital, said.

Beauty and personal care, and food and lifestyle are likely to see a large number of acquisitions and consolidations in 2023. “We expect to see a lot of deal activity this coming year as well, with larger companies acquiring D2C brands in those categories,” Agarwal added.

In November, Aditya Birla Group made a series of investments in fashion apparel players under its platform TMRW to keep pace with the acquisition spree of its peers. It bought Bewakoof, a distressed fashion brand in a ₹200 crore deal. It is exploring opportunities to buy other lesser-known and established brands.

In September, Emami said it was looking to focus on digital business, especially D2C and eB2B segments. In March, the company picked up a stake in D2C brand TruNative, which sells food and beverages. Tata Digital had acquired BigBasket last year and put in an another $200 million in the business earlier this month.

The acquisitions also made sense for some larger business houses chasing growth. Deals include the distressed sale of Tiger Global-backed fashion e-commerce startup LimeRoad to V-Mart Retail Ltd, and craft beer maker Bira91’s acquisition of The Beer Cafe in October. The deals offer a breather to these startups looking to leverage supply chain and distribution channel strengths of large entities while addressing the need of any immediate funding requirement, Agarwal said.

Many D2C brands realized that they would need to eventually adopt the omnichannel route to remain relevant.

“Firms are finding it hard to grow without burning capital or going omnichannel in a big way. Valuations are also dropping and funding is not easily available in the market as most funds have already taken bets in larger players. Players with deep pockets will continue to consolidate in this market and we will continue to see smaller and distressed deals,” said Abinandan T. S., director at Veda Corporate Advisors. “As companies look to integrate back-ends to front-ends, own more of the value chain, we will see more acquisitions,” Dipanjan Basu, partner, Fireside Ventures, said.

Basu welcomed such strategic acquisitions as a favourable route for venture capital funds to exit these businesses. “We view these as a positive development where several of our companies can enhance their capabilities through inorganic means. On the other hand, we are presented with exit opportunities for brands that have grown well,” he added.

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