MakeMyTrip receives $82.5M as Ibibo completes the merger

In October last year, one of the biggest consolidation in the travel space was announced with talks of the MakeMyTrip and Ibibo Group merger. The Ibibo Group has reportedly contributed around $82.8 million in cash to MakeMyTrip. The merger has taken place after three months of the initial announcement.

This merger will bring together the top travel brands like MakeMyTrip, goibibo, redBus, Ryde, and Rightstay under one unit. These are said to have had over 34.1 million transactions in 2016. This deal has marked the coming together of two of India's largest travel booking portals.

However, the 14 percent stake in Nasper’s payment business PayU and 52 percent stake in online travel company Tek Travels will not be a part of the merger.

Upon closing of the transaction, MakeMyTrip will own 100 percent of Ibibo Group. Naspers and Tencent will become the single largest shareholder in MakeMyTrip, owning a 40 percent stake, and will contribute proportionate working capital upon closing.

Additionally, prior to closing, the $180 million, five-year convertible notes issued by  MakeMyTrip Limited to Ctrip.com International Ltd. in January 2016 will also be converted into common equity, resulting in Ctrip having an approximately 10 percent stake in the combined entity.

By end of December, MakeMyTrip had $153.8 million in cash and cash equivalents. The company has issued 38.91 million Class B shares to Ibibo group. The entity owned by Naspers and Tencent is said to have purchased 413,035 new ordinary shares of MakeMyTrip at $21.19 per share for a total cash consideration of $8.75 million.

In its statement in the cash and cash equivalents at the end of December last year, MakeMyTrip said that upon completion of the transaction, the number of issued and outstanding voting shares will be over 91,186,205 and Class B shares will be at 38,971,539 and over 413,035 ordinary shares, which will be held by the Parent, and over 9,857,028 ordinary shares held by Ctrip.com international.

For MMT-Ibibo group deal, their rationale was: Pricing; Market for hotels is just opening up, and together both can do it much better; and redBus – a clear market leader in bus segment which is essential for India. All these factors put together along the talent which gave tech and product stood out to close the mega-merger, according to Deep Kalra, Founder of MakeMyTrip.

The roots of the MakeMyTrip-Ibibo group merger goes back as early as last year. Deep had then used a common friend (who is an investor) to set up a call with Bob van Dijk, CEO of Naspers (Worldwide).

This deal marks one of the biggest mergers for the travel industry. The company started building its hotels business in 2012. MMT has seen competition from early days only. Since 2005, they have been competing with Yatra, Cleartrip, and many others.

In 2012, there were international players as well like – booking.com and Expedia. And that’s when Deep seriously noticed GoIbibo.com, who were competing tooth and nail and investing a lot of money in this sector.

Deep acknowledges that MMT was completely blindsided about GoIbibo for the first two years, and used to say that they are a discount shop. He explains, “We had a lot of scorn for discount shops; we knew you can’t build a business on discounting. But we were wrong."

Deep says, “If you don’t build your own moat which can truly hold you steady, someone else is going to come and eat your lunch. So we are going to make sure it’s our party.”

Instead of getting into dogfights, day in and day out (and thinking about how much was spent, how much to put into wallet, coupons, transactions), the merger allows Deep and his team to step back and say:

“Let’s build a real value for the long term what we used to do. Sadly for last 18 months, we threw that out of the window. We are going to go back to basics, we’re going to do the right things and that’s the only way we are going to protect ourselves.”