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.