PAKlSTAN is a strange country: for its sheer size, the economy is disappointingly small. By that, I don`t necessarily mean aggregate numbers but rather the complete absence of large businesses, ie companies that do at least a few billion dollars of revenue every year. In fact, outside commercial banks and the oil & gas value chain the two sectors where the state`s direct and indirect involvement helps you`d be hard-pressed to find entities that can boast a top line of 10 digits.

While the problem is broadbased, it certainly seems more amplified in technology. Over the last decade, the sector has brought in exports of more than $18 billion and is already among the biggest components of the services industry. Not only that, it is now the single largest driver of corporate activity, accounting for 15 per cent of all new company registrations in FY24.

Yet, for all this growth, there are too few large organisations in technology.

Forget the pipedream of a billion dollars; even $50 million is a target toosteep for the most part. According to firm-wise data analysis from SBP, `More than 80pc of firms in Pakistan export less than $0.1m, and more than 90pc export less than $0.5m per year.` The problem is not limited to just export-orientated firms. Those selling to the domestic market, be it consumer or enterprise, struggle to scale beyond a certain point, no matter what the sector.

From fashion retail to food chains, there is a visible cap that companies struggle to break through. Of course, part of the reason relates to the purchasing power problems in Pakistan, which have onlyworsened in the last few years.

But it`s not the whole story.

Pakistani organisations have struggled to scale in part because of their unwillingness to seek inorganic growth, ie mergers and acquisitions (M&A). How many big transactions can you think of in the last few years? While there`s no exact data on this, we recently tried to map all activity for Data Darbar`s Tech and Venture Capital Landscape report 2024.

In the last five years, we found that there have been at least 38 M&A transactions in Pakistan`s broader technology sector, including both product and service businesses.

These range from Alibaba`s buyout of Daraz in 2018 to the less-publicised sale of Rider to Truck It In.

The market activity peaked in 2022, in line with overall funding, with 15 transactions, many of them driven by aggressive expansion amid abundant venture capital. That same year, Cloudways, a managed cloud hosting startup, was acquired by US-based DigitalOcean in a $350m deal, comfortably the largest exit ever for a Pakistani-founded company.

Similarly, e-commerce platform Bagallery acquired emerce.pk, and fintech firm Tez was bought by Switzerland`s ZoodPay. While many of these deals were purely stockbased, these were confident moves made in an environment where funds were still plentiful, valuations high, and exit conversations aspirational.

However, the motivations behind these deals seem to have shifted drastically over time. By 2024, disclosed equity funding for startups in Pakistan had fallen to just $22.5m, its lowest since 2018, down from $75m a year earlier and a far cry from close to $350m around the boom. In this climate, the nature of M&A has become less about expansion and more about consolidation, or even just a facesaving exit.

Anyway, sticking to the data, we find that most of the transactions, ie 25, have been cross-border in nature.

Historically, cross-border M&As dominated, with foreign firms acquiring local assets or, in the case of services firms, Pakistani companies buying small shops abroad. However, of the five M&A deals recorded in 2024, four were domestic, indicating a sharp rise in local consolidation. With global investors more risk-averse, local players have increasingly turned inward, seeking survival through partnership rather than acquisition by international partners.

For the most part, the activity was dominated by service firms, not products, accounting for both the parties in 18 of the 38 deals, while 14 took place between product-driven entities. The remaining six transactions had one of the parties being product-focused.

However, the aggregate numbers seem to give a wrong impression because much of the M&A in services was thanks to the acquisition spree undertaken by one single company.

10 Pearls emerges from the data as perhaps the most ambitious example of this new Pakistani archetype. With over a dozen acquisitions spanning multiple continents, the company has effectively used Pakistan as a launchpad for building a global technologyservices giant. In contrast, product startups remain harder to sell, especially at meaningful valuations, partly because of the high funding amounts they had obtained during good times.

However, Pakistan`s M&A story still has the key missing character: institutional buyers. In the US, Europe, and increasingly India, large corporations, from banks and telcos to private equity acquire small and medium enterprises to fast-track distribution or buy into disruptive business models.

Local conglomerates and financial institutions, despite having the balance sheets, have shown little appetite for acquiring startups, often citing regulatory uncertainty, risk aversion, or lack of internal capacity to integrate young tech companies. The result is a bottleneck: founders cannot exit, investors cannot recycle capital, and early-stage deal flow suffers.m The writer is co-founder of Data Darbar and works for the Karachi School of Business and Leadership