This guest column is authored by Vineet Sagar, Managing Partner, Venture Garage
In a landmark transaction to form the largest online travel company in India, MakeMyTrip (MMT) has agreed to acquire Ibibo Group’s online travel business in the country. The deal is all in stock with Ibibo shareholders getting $720 million worth of newly issued MMT stock in exchange. The transaction values the combined entity at $1.8 billion, welcoming another online venture into the league of unicorns.
India’s travel market which is currently sized at $28 Bil is expected to grow to $40 billion by 2020. By then online will account for half of the total pie driven by aggressive flight booking volumes and backed by deepening internet penetration, increasing usage of smartphones, and rising disposable incomes.
What does it mean for Investors?
Naspers and Tencent hold 91% and 9% stake in Ibibo, respectively. Post completion of the transaction MMT will own 100% of ibibo Group, and Naspers + Tencent will together become the largest shareholders in MMT with a 40% stake. China-based OTA, Ctrip received $180 million of 5-year convertible notes from MMT in January this year which will also get converted to common equity post which Ctrip will own 10% of MMT. MMT share prices jumped over 40% on NASDAQ on Tuesday valuing the company already at $1.2 billion. All shareholders must be happy to see that the transaction was taken well by public markets.
Naspers has made some heavy bets on the Asian online markets with 34% stake in Tencent (Owns Wechat), Asia’s largest online company valued at over $250 Bil; $400 million invested in Indian e-commerce major Flipkart for a 16% stake; and approx $500 million invested in Ibibo for 91% stake.
“India is a key market for Naspers, and this deal reinforces our commitment to the country……… The Indian eCommerce market, and the online travel segment in particular, offers exciting growth prospects for us as a group. …” – Bob Van Dijk, CEO, Naspers
What does it mean for MMT?
Currently, the Hotels (19%) segment in India is a lot more under-penetrated online compared to Airlines (52%) and Railways (43%), however it offers the best margins to OTAs leading to high levels of competition in the industry. MMT controls about 29% of online flights and 25% of online hotels market, while GoIbibo has a 20% share in the online hotel bookings segment. With the acquisition, MMT will get access to Ibibo’s hotel inventory which will be a path breaking opportunity for MMT to increase its market share in a lucrative hotel market. Ibibo will also bring Redbus with it, India’s largest bus ticketing platform. The combined formidable entity will host under its umbrella some of the leading travel brands of the country including MMT, Goibibo, RedBus, Ryde and Rightstay, which together processed over 34 million transactions in FY2016.
In Q1 2017, MMT took a net loss of $14.31 million, approximately double the loss it reported during the same period last year. In complete FY 2016, MMT reported net loss of $88.5 million on a turnover of $336 million. Gross bookings on MMT were recorded at $1.85 billion.
What does it mean for Industry?
The sheer rate of growth India’s travel industry has witnessed along with rapid online adoption has led to the birth of many OTAs. The transaction will change India’s OTA landscape. It is a strategic move by MMT and Ibibo to consolidate their position and market share in the highly competitive Indian travel market which is dominated by multiple players including GoIbibo, MMT, Yatra, Cleartrip etc.
Priceline and Expedia, the OTA giants of the world that control majority of the US and European markets via their own brand and through subsidiaries such as Booking.com, Agoda.com and Hotels.com, have been unsuccessful in capturing the Indian market due to the early rise of local players and access to venture capital. MMTs acquisition of Ibibo will create synergies between the two companies operations, resource base and inventory base, making it an even more deterring task for Priceline & Expedia to conquer share in the Indian travel pie.
“The travel marketplace is very competitive, with immense cash burn; hence consolidation had to happen. I think the strategy is to become bigger and leaner. There are many more deals like this to come”- Raja Lahiri, Partner, Grant Thornton India told The Economic Times.
What does it mean for Founders?
Post closure of the transaction, MMT Founder Deep Kalra will remain Group CEO and Executive Chairman of MMT, Co-founder Rajesh Magow will hold up to CEO India of MMT. Ashish Kashyap, Founder and CEO of ibibo Group, will become Co-founder and President of MMT.
“..…I am delighted to be leading such a strong team in our next chapter of high-growth in this dynamic industry.” – Deep Kalra
“…. I am excited that this merger enables all of us to continue a great journey together as the leading travel group in India.” – Ashish Kashyap
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