India: How much data should startups share during acquisition talks

Cure.Fit co-founder Mukesh Bansal (Photo: Mint)

Mukesh Bansal-led health and fitness startup Cure.Fit approached a food brand that owns quick service restaurants in Bengaluru with a proposal to acquire them almost a year ago.

Subsequently, the brand’s founder met several top executives from the Cure.Fit team, including Bansal, on three occasions. Convinced about Cure.Fit’s intention to buy his startup, the founder shared data on customer footfalls, unit economics and other performance metrics with Cure.Fit—as is customary before a purchase.

But things didn’t turn out as planned. The deal fell through. The founder, though vaguely aware of Cure.Fit’s offline ambitions, dismissed it as a setback, part and parcel of corporate life. However, he later discovered that Cure.Fit was launching its own quick service restaurants under the Eat.Fit brand.

It wasn’t entirely unexpected, however. He had heard about the bitter experience another founder had with Cure.Fit.

“I had a warning signal from another founder, who went through a similar experience with the firm,” he recalled.

These aren’t isolated incidents. At least six founders of startups across food, fitness and medical industries have expressed concerns over sharing proprietary information with Cure.Fit during acquisition conversations. The founders did not want to be identified because of the sensitivity of the matter.

“Several gym owners in Mumbai, Bengaluru and Hyderabad have said that they were approached by Cure.Fit—which offered to take over and promised large revenue—requested for their database and after taking that information, did not take the deal forward,” said a person from the industry, who did not want to be named.

Earlier, this month, Book Your Game (BYG), a marketplace to book gyms and fitness centres, filed a case with the Bengaluru city civil court against Cure.Fit, accusing it of making an acquisition proposal and not following through. Consequently, Bengaluru-based BYG, which was in acquisition talks with Cure.Fit, was granted a temporary injunction forcing Cure.Fit to refrain from launching its new product, Gym.Fit.

Among other things, BYG alleged that Cure.Fit offered to acquire the firm for about 5 crore (cash and stock) in June, but eventually revoked the offer following an exchange of important data and intellectual property. This development was first reported by The Economic Times on 17 August. Mint has reviewed a copy of the order. The next hearing is on 11 September.

Cure.Fit and BYG declined to comment on the case as it is sub judice.

Cure.Fit has been one of the fastest growing startups in India and most of this growth has been accelerated by a slew of acquisitions of early-stage companies.

To be sure, prolific acquirers tend to become unpopular for not following through on their proposal in many cases. For instance, when Flipkart was on an acquisition spree in 2015, it had discussions with several more companies than it planned to acquire. This made entrepreneurs wary of sharing data with the company.

The concerns over Cure.Fit are similar. While the firm is looking to create an overall health and fitness ecosystem by making several acquisitions, it is talking to many more startups than it plans to acquire.

“Most discussions, whether acquisitions, partnerships or investor meetings, always involve a certain amount of high-level data exchange,” a Cure.Fit spokesperson said, while declining to comment on any specific acquisition. “Only once both parties are satisfied with preliminary aspects does any potential transaction proceed for customary succeeding steps. Hence, we deny any allegations of data sharing and reiterate that all deal-making process involves high-level data sharing and not all deals go through.”

Cure.Fit’s series of acquisitions started with two boutique fitness brands—Cult, in 2016, and The Tribe, in 2017—that have now become its fitness centres in Bengaluru. The company also acquired yoga chain a1000yoga and Bengaluru-based health food delivery firm Kristys Kitchen to launch its food business in 2017.

Earlier this year, Cure.Fit acquired health beverage brand Rejoov. In April, Cure.Fit also launched an incubator programme for startups engaged in creating healthy snacks and beverages. The idea is to invest $5 million across 8-10 startups in the next two years as it looks to co-create products as well, Cure.Fit co-founder Ankit Nagori told Mint during a telephonic interaction in April.

“The company talks to at least one firm every week for potential acquisitions,” said a person familiar with the firm’s strategy. “This also leads to several deals falling through.”

Several industry stakeholders Mint spoke to believe that since Cure.Fit’s business model is constantly evolving, an acquisition conversation could turn into a conflict of interest at any point.

“For instance, when a gym is talking to them (Cure.Fit), they never really look at it as a conflict of interest,” said another startup entrepreneur, requesting anonymity. “They have said in the past that they are not looking at aggregation—and that whatever information they need is to understand the business and possibly look at a deal. Then, suddenly a conflict of interest arises because they launch a similar product.”

Investors said that acquisition talks falling through is common. They added, however, that most deals do not go through as a result of something unusual that is discovered during due diligence.

Lawyers Mint spoke to say that to avoid any data leakage, startups can have a contract, wherein the term sheet clearly states that the data acquired during the process of diligence has to be kept either confidential or deleted if the deal doesn’t go through.

The article was first reported on livemint.com 

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.