Ola board approves buyout of Avail Finance, promoted by founder Bhavish Aggarwal's brother; Ankush Aggarwal likely to lead Ola Financial

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IPO-bound Ola's board has approved the acquisition of Avail Finance, a company promoted by founder and CEO Bhavish Aggarwal's brother, for $50 million in a share swap deal, people familiar with the matter said, adding that his sibling Ankush Aggarwal is likely to lead Ola Financial post the merger.

Moneycontrol reported on March 25th, 2022 that the mobility platform is likely to buy Avail, even as some investors were hesitant about signing off on the transaction because it involved related parties, prompting questions on probity and governance.

"A few investors raised concerns but the board ultimately approved it. It was always clear that Bhavish only needed a simple majority to see the deal through," one of the persons cited above said. Ola's parent ANI Technologies' board of directors include Bhavish Aggarwal, Matrix' Avnish Bajaj, Tencent's Brent Richard Irvin, SoftBank's Sumer Juneja, co-founder Ankit Bhati, Krishnamurthy Venugopala Tenneti, who Aggarwal counts as an advisor and former Vodafone CEO Arun Sarin, who is also a board member and investor in Aggarwal's other venture Ola Electric.

"The Board has not been able to stop a seemingly illogical acquisition in a conflict of interest situation. Such practices will be closely watched by public market investors and seen as huge red flags should the company list in public markets", Shriram Subramanian, founder and MD, InGovern Research told Moneycontrol

Ola is yet to respond to queries sent by Moneycontrol on April 10th.

The merger comes as the SoftBank-backed firm, which was planning to list on the public markets this year, now plans to raise a new round of funding at a lower valuation, signifying a sharp reversal in fortune for startups, after a record 2021 that saw sky-high valuations in the public and private markets.

The target company, Avail Finance was founded in 2017 by Bhavish's brother Ankush Aggarwal and Tushar Mehndiratta, and offers lending products such as personal loans, salary advances, savings, to blue-collar workers. The move is expected to help Ola expand its fintech offerings and allow it to offer credit to its driver partners. But sources said Avail has been struggling to survive and raise money as its business was hit during the pandemic, so the merger is nothing short of a lifeline.

Both Bhavish and Ankush are directors of the firm, apart from which Ola and Avail Finance also have common investors: Alpha Wave Global and Matrix Partners. Ola currently holds 9% in Avail Finance and had invested in the firm three years ago. Avail's leadership will join Ola post the deal, with Ankush leading the Financial business going forward.

"The acquisition is a key step in Ola’s broader push into the fintech space as it looks to build a mobility-focused financial services business under Ola Financial. With this acquisition Ola Financial Services will further strengthen its play in the credit underserved segments that comprise blue-collar workers such as Ola’s driver-partner ecosystem. The deal is subject to

shareholder approval," the firm had said in a statement on March 24th, in response to queries on the deal then.

It further said Ola will leverage Avail Finance’s products and capabilities to strengthen Ola’s lending business and help Ola expand into Neo Banking products and will be able to cross sell multiple lending products to its large driver-partner base. It said it has invested 800 crores into its financial services business such as Ola Postpaid, its BNPL offering its vehicle financing business, and insurance.

A recent report by Mint had raised red flags on Avail's business model. According to the newspaper's investigation, Avail, in some instances, has been using its own money to lend, flouting an RBI rule that allows only banks and NBFCs(non-banking financial services) to lend.

Aggarwal's move to merge his brother's firm with Ola, comes at a time when the firm is battling multiple headwinds. It is looking to raise $150-$200 million at a valuation of $5 billion compared to its last round which happened at $7 Billion as its IPO plans are delayed. It is also yet to receive the $500 million loan that it raised from investors late last year.

Sources said while the money has been wired from investors, it is sitting in Singapore and hasn't been remitted to India yet, as it is awaiting approvals from RBI. Ola has already paid interest of $10 million on this loan so far.

Ola was last valued at $7.3 billion when it raised $139 million in its Series J round, led by Edelweiss PE, IIFL, and Sunil Munjal-led Hero Enterprises, in what seemed like the last round of funding before its IPO. Before the $139 million, it raised $500 million from Warburg Pincus and Temasek, giving early backers Tiger and Matrix a part exit in the company.

Founder and CEO Bhavish Aggarwal had said that Ola plans to go public in the first half of 2022 at a Reuters Next conference in December last year.

Aggarwal also outlined plans to create a super app that would offer not just mobility but also loans and microinsurance. Ola has also been investing heavily in its instant grocery delivery business, Ola Dash, as it seeks to build services beyond ride-hailing, which took a hit post-pandemic. Global rival Uber, for instance, earns more from food delivery than its core rides business.

To be sure, Ola is not the only company that is pushing out its IPO due to the current market environment. Two other SoftBank-backed firms: Delhivery and Oyo have also deferred listing plans, as technology stocks in India and US have taken a beating, leading investors to wonder whether the epic bull run and a party fueled by low-interest rates may be ending.

This is also not the first time that Ola will be raising funds at a lower valuation than its previous round. In early 2017, it raised $330 million at a valuation of $3.5 Billion, compared to the $5 Billion it raised in its previous round.

The company has witnessed a spate of exits in recent months, including its Chief Financial Officer Swayam Saurabh, Chief Operating Officer Gaurav Porwal, HR head Rohit Munjal and General Counsel Sandeep Chowdhury,

Aggarwal is the founder of two unicorns- the ride-hailing business Ola and Ola Electric, which has ambitious plans to disrupt the electric two-wheeler market. It had started the deliveries of its electric scooters in December last year, a delay from its initial plans of an October delivery timeline.

While Covid-induced lockdowns battered its ride-hailing business in the last year, it has been making a recovery of late as India has opened up significantly in the last few months.