MakeMyTrip acquires rival travel company Ibibo
In the biggest consolidation move in the online travel agency ( OTA ) space in India , NASDAQ-listed MakeMyTrip Ltd ( MMYT ) agreed to buy Ibibo Group ’ s travel business in India in an all-stock deal . South Africa ’ s Naspers and China ’ s Tencent Holdings will sell Ibibo Group to MakeMyTrip in exchange for issuance of new shares by Make- MyTrip ( Combined entity ). Prior to the deal , Naspers and Tencent jointly held 91 %
Key term : Enterprise Value
Enterprise Value ( EV ) is a measure of a company ' s total value .
EV = market value of common stock + market value of preferred equity + market value of debt + minority interest - cash and investments .
Shareholding :
Naspers & Tencent Pre-deal = 91 % of Ibibo Post-deal = 40 % of Merged Co MMYT investors Post deal = 60 % of Merged Co ( including Chinese travel major Ctrip = 10 %)
Markets reac�on :
· Before the announcement of the deal , MMYT ’ S Enterprise value was 6.1 �mes its 2016 fiscal revenues .
· A�er the announcement , MMYT ’ s market capitaliza�on grew by 44 % and investors were valuing the combined en�ty at 10.8 �mes the es�mated revenue of the combined en�ty .
· This indicated that the investors viewed the transac�on posi�vely .
Financial Advisors :
· MakeMyTrip — Morgan Stanley
· Ibibo — Goldman
Valua�ons : Value of Combined En�ty : USD 1.8 Bn Naspers & Tencent Holding : 40 % Transac�on Value : 1.8 * 40 % = USD 720 Mn
What is expected from this deal ?
· The merger will bring together a large suite of brands under one roof , including the big three in the Indian OTA space – MakeMyTrip , Goibibo and Redbus , along with the smaller brands such as Ryde and RightStay .
· The combined en�ty is expected to become a behemoth in the Indian OTA segment . Redbus , a market leader in the bus �cke�ng space , enhances the por�olio for MMYT significantly .
· The excessive discoun�ng would gradually fall , thereby improving margins for the firm . The combined en�ty will be able to extract be�er deals from hotels and airlines owing to the larger customer base . Users on both sides of the aggregator thus are in for a loss .
· The merger will also result in ra�onaliza�on in marke�ng expenditure .
· The two companies truly complement each other on mul�ple fronts . While MMYT is majorly into hotels , air bookings and customized travel services , Goibibo has greater presence in bus �ckets ( with Redbus ), air and hotel bookings . Even within the hotels , MMYT is present in the 3- to 5-star space , while Goibibo focuses more on the budget segment .
· These complementari�es and an unpenetrated online travel market makes this mega-merger an interes�ng one .
Our two cents : In a highly underpenetrated and fragmented market , the merged entity can truly become a one-stop-shop for all Indian travelers . Hotels booking business is witnessing entry of several competitors with branded aggregation of properties as a business model . The combined entity will be in a better position to tackle this competition all thanks to its deep pockets . It will be able to raise money not only from the market given that MMYT is listed on Nasdaq , but can also access funds from South African media conglomerate Naspers , Chinese internet giant Tencent and Chinese online travel major Ctrip . com .