DMI Finance likely to close acquisition of BNPL firm ZestMoney in next two weeks

DMI Finance to take over ZestMoney in a fire sale deal

Non-banking financial company (NBFC) DMI Finance, which was in the fray to acquire beleaguered Buy Now Pay Later startup ZestMoney is likely to close the fire sale deal within the next two weeks, according to sources aware of the development.

A source close to the development told Moneycontrol that the other players like Aditya Birla Finance, Piramal and Hero Fincorp have backed out citing high exposure, which amounts to nearly Rs 700-800 crore in the ZestMoney deal.

“DMI is one of ZestMoney’s early backers, the sale is almost finalized and in the documentation process,” the person quoted above said.

In November 2022, PhonePe was in talks to acquire ZestMoney, a move that would have marked the Unified Payments Interface (UPI) leader's foray into digital lending. According to reports, the deal size was estimated at around $200-$300 million.

However, in March, the Walmart-backed fintech decacorn walked away from the deal, citing issues with due diligence, leaving ZestMoney in a state of chaos.

Without PhonePe's involvement, ZestMoney faced difficulties. In its first round of layoffs, the company let go of around 100 employees or 20 percent of its workforce, as it formulated a business continuity plan. Some employees were also absorbed by PhonePe.

On December 5, 2023, ZestMoney announced to its employees in a town hall meeting that the firm was shutting down following RBI's credit risk weight move on unsecured personal loans, the NBFC lenders on the platform had stopped lending, making the company's revival even more difficult.

The firm had then said that the employees would be let go with severance and job placement assistance. The firm had around 150 employees on roll.

However, as the sale to DMI is getting finalised, employees Moneycontrol spoke to said that the officials of DMI called a meeting where the NBFC said that most of the roles will be retained.

“While no formal communication was given, DMI Finance officials held a meeting with employees and the founders of ZestMoney and said that most of the jobs will be retained,” an employee told on the condition of anonymity.

A few employees were on their notice period and have resigned from ZestMoney, however, DMI has said there will be no layoffs and the existing employees can continue with the company.

The company's founders, Lizzie Chapman, Priya Sharma, and Anantharaman, who were CEO, CFO and CTO, respectively resigned on May 15, just two months after the PhonePe deal fell through.

A senior executive requesting anonymity said the current leadership team at ZestMoney will continue to be at the helm post-acquisition, and carry out the operations. "There won't be much change in the top leadership positions," he added.

Since the co-founders' exit, ZestMoney has internally appointed Abhishek Sharma, head of growth; Madar Satpute, Chief Banking officer; and Mohit Chhajer, Vice President of Finance and Financial Operations.

Official emails sent to ZestMoney & DMI didn't elicit any responses at the time of publishing.

Valuation

Further, while the new valuation of the BNPL fintech remains undisclosed, the executive quoted above said it is not "severely down and continues to be in three digits".

In 2021, ZestMoney had raised $50 million at a valuation of $340 million. Prosus, which held a 19.4 percent stake in ZestMoney, had written off its $38 million investment in Primrose Hill, the corporate entity controlling ZestMoney, as of March 2023. This was a follow-up of its deal fallout with PhonePe and the exit of the co-founders.

Sources said that the firm’s personal loan book has around Rs 150 crore of disbursals. In FY23 ZestMoney posted a net loss of around Rs 412 crore. ZestMoney’s operating revenue went up 76 percent to Rs 244 crore  in FY23 from Rs 138 crore in FY22