Oct 20, 2016 11:32 AM IST | Source:

MakeMyTrip-Ibibo deal signals maturing of Indian online space

While the biggest deal in India‘s online travel aggregation space signals a maturity in the sector, providing an exit path to investors, it would also lessen cash burn. With this deal, all three large brands in OTA space – Yatra, MakeMytrip and GoIbibo will be on path to be listed entities on Nasdaq.

Priyanka Sahay


In a move that signals the maturing of India’s consumer internet space and likely lesser cash burn in the online travel space, Nasdaq-listed MakeMyTrip on Tuesday announced it will acquire rival ibibo Group which is owned by South African media firm Naspers Ltd.

This is expected to be one of the most significant deal in the online space, post the Flipkart-Jabong deal earlier this year, pointing towards the herald of an era of overall maturity in the online space.

This is by far the largest deal in Indian online travel aggregation space. Estimated by analysts to be of around USD 600 million to USD 700 million, paid for by MakeMyTrip in stock to acquire Ibibo Group. 

The two companies had been fighting a bitter discounts and promotions war since early this year.

MakeMyTrip announced USD 180 million fund raise through convertible bonds from China’s Ctrip in January. Following the move, the next month, Naspers Group announced its plans to invest an additional USD 250 million in Ibibo Group.

"Even though the number of deals in India have not increased this year in e-commerce, we have seen significant consolidation. This can be considered as a sign of the industry maturing, said Sreedhar Prasad, partner, e-commerce, research and consultancy firm KPMG.

"This could give a clear strategic advantage to the combined entity on multiple counts – category level dominance which could lead to better bargaining power, back end integration helping in reducing overall costs and enhancing the scale of operations," he added.

Ad spending by the rivals to lessen

This led to huge price games. The two companies then got on to big ticket advertising games, as well.

While MakeMyTrip launched, star-studded television campaign led by actors Alia Bhatt and Ranveer Singh, Ibibo launched a feature, travel-based social network, GoContact and did aggressive television advertising for the same.

Neither of the two companies have disclosed their advertising spends. However MakeMyTrip cofounder Deep Kalra said in a call that ad dollars will continue to be spent to strengthen all three brands – GoIbibo, MakeMyTrip and redBus.

Analysts say that consolidation was much needed for the benefit of investors. “The online travel agency segment needed some consolidation as air travel has become commoditised and MakeMyTrip and Goibibo were both on a discounting war for market share which wasn't ideal for them although retail customers benefited during this phase,” said Vinod Murli, Managing Director, InnoVen Capital India.

“The expectation will be to build a strong market leader across travel categories and its one less competitor to contend with. A well-funded competitor at that,” he added.

The deal also comes after MMT’s biggest competitor, Yatra Online Inc. agreed to reverse-merge with Terrapin 3 Acquisition Corp. which will see it now trade on Nasdaq. The transaction which happened in July gives an enterprise value of USD 218 million to Yatra.

The move also signals to more bold mergers and acquisition in the online space where high burn situations are not able to access capital and are also not able to trade through to profitability.

Post the merger, consumer travel brands including MakeMyTrip, goibibo, redBus, Ryde and Rightstay will come together, which together processed 34.1 mm transactions during financial year 2016.

Naspers and Tencent will become the single largest shareholder in MakeMyTrip owning 40 percent stake, once the deal concludes and will contribute proportionate working capital upon closing, MakeMyTrip said in a statement on Tuesday.

Deal is a win-win for Naspers in India

Besides travel, Naspers also has large stakes in fin-tech and e-commerce sectors.

It owns majority stake in PayU Global, an international online payment solution company. In September, PayU Global announced the acquisition of rival Citrus Pay for USD 130 million in an all-cash deal.

It also holds stake in Flipkart. Naspers has so far invested over a billion US dollars in India.

Additionally, prior to closing, the USD 180 million, 5-year convertible notes issued by MakeMyTrip Limited to International, Ltd will also be converted into common equity, resulting in Ctrip having an approximately 10% stake in the combined entity, the statement added.

“We expect this deal to create an even more scalable business with the expertise to transform the booking experience for Indian travellers,” said Deep Kalra, Chairman and Group chief executive officer of MakeMyTrip.

Following the deal, Kalra will remain Group CEO and Executive Chairman of MakeMyTrip and Co-founder Rajesh Magow will continue to remain CEO India of the company. Founder and CEO of ibibo Group, Ashish Kashyap, will join MakeMyTrip's executive team as a Co-founder and President of the organisation.

The two companies are expected to have close to 70,000 hotels across different categories.

The combined entity will also compete with Cleartrip Pvt. Ltd, which last raised an undisclosed amount in a fresh round of funding from existing investors US-based Concur Technologies and Gund Investment, among others, earlier this year.

Softbank-backed budget hotel aggregator is likely to face the heat as well, given that MakeMyTrip’s will have huge focus on the high margin hotel business post the deal gets completed.

"India is a key market for Naspers, and this deal reinforces our commitment to the country. ibibo and MakeMyTrip have built leading companies through their innovative use of technology to create exceptional experiences for people traveling throughout India and, increasingly, beyond," said Bob van Dijk, CEO Naspers.

The transaction is expected to close by the end of December 2016.

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