IPO-bound mobility platform Ola will buy founder and CEO Bhavish Aggarwal's brother's firm Avail Finance for $50 million in a share swap deal, people familiar with the matter said, even as some investors were hesitant about signing off on the transaction because it involved related parties.
The merger comes days after Moneycontrol reported that the SoftBank-backed firm, which hoped to list on the the public markets this year, is mulling 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.
"Avail has been struggling as its lending business was hit during the pandemic, it also laid-off employees.
The merger is a lifeline from Bhavish. Some investors were apprehensive about pushing this through because it would become a related party transaction. But Bhavish only needs a simple majority and will be able to push the deal through," one of the persons cited above said.
Avail Finance was founded in 2017 by Bhavish's brother Ankush Aggarwal and Tushar Mehndiratta, and offers products such as personal loans, salary advances, savings, to blue-collar workers. 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.
In response to queries from Moneycontrol sent on March 24th evening, Ola issued a press release to media around midnight confirming the deal, though it did not specify the terms of the deals or disclose the relationship between both parties."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 said in a statement.
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.
Ola 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.