The merger occurs as the SoftBank-backed firm, which was planning to list on the public markets this year, now plans to raise a new round of funding at a lower valuation, indicating a sharp reversal in fortune for startups following a record 2021 that saw sky-high valuations in both the public and private markets.
IPO-bound According to persons familiar with the subject, Ola’s board has approved the acquisition of Avail Finance, a company championed by founder and CEO Bhavish Aggarwal’s brother, for $50 million in a share swap agreement, with his sibling Ankush Aggarwal set to manage Ola Financial following the merger.
Moneycontrol announced on March 25th, 2022 that the mobility platform is expected to buy Avail, despite the fact that certain investors were hesitant to sign off on the transaction because it involved related parties, raising concerns about probity and governance.
“Although a few investors expressed reservations, the board finally accepted it. It was always obvious that Bhavish merely required a simple majority to complete the transaction “one of the aforementioned individuals stated Bhavish Aggarwal, Matrix’s Avnish Bajaj, Tencent’s Brent Richard Irvin, SoftBank’s Sumer Juneja, co-founder Ankit Bhati, Krishnamurthy Venugopala Tenneti, who Aggarwal counts as an advisor, and former Vodafone CEO Arun Sarin are all board members and investors in Aggarwal’s other venture Ola Electric.
“Despite the objections of a few investors, the board eventually approved it. It was always clear that Bhavish needed only a simple majority to execute the transaction “one of the aforementioned people indicated Bhavish Aggarwal, Avnish Bajaj from Matrix, Brent Richard Irvin from Tencent, Sumer Juneja from SoftBank, co-founder Ankit Bhati, Krishnamurthy Venugopala Tenneti, who Aggarwal counts as an advisor, and former Vodafone CEO Arun Sarin are all board members and investors in Aggarwal’s other venture Ola Electric.
The target company, Avail Finance, was launched in 2017 by Bhavish’s brother Ankush Aggarwal and Tushar Mehndiratta and provides lending products to blue-collar workers such as personal loans, salary advances, and savings. The move is likely to assist Ola in expanding its fintech capabilities and allowing it to provide loans to its driver-partners. According to insiders, Avail has been fighting to exist and obtain funds as a result of the pandemic, thus the merger is nothing short of a lifeline.
Bhavish and Ankush are both directors of the company, and both Ola and Avail Finance have common investors: Alpha Wave Global and Matrix Partners. Ola presently owns 9% of Avail Finance and invested in the company three years ago. Following the transaction, Avail’s leadership will join Ola, with Ankush overseeing the Financial business.
“The acquisition is an important move in Ola’s larger push into the fintech market, as the company seeks to develop mobility-focused financial services firm under Ola Financial. Ola Financial Services will strengthen its position in credit underserved categories that include blue-collar employees, such as Ola’s driver-partner ecosystem, as a result of this acquisition. The transaction is subject to shareholder approval “the company stated in a statement on March 24th, in response to queries on the deal then.
It goes on to say that Ola will use Avail Finance’s products and skills to boost Ola’s lending business and assist it to expand into Neo Banking products, as well as be able to cross-sell different lending products to its huge driver-partner base. It stated that it has invested 800 crores in its financial services sector, which includes Ola Postpaid, its BNPL offering vehicle financing, and insurance.
A recent Mint study raised concerns about Avail’s business approach. According to the newspaper’s investigation, Avail has used its own money to lend in some cases, breaking an RBI restriction that only banks and NBFCs (non-banking financial services) can lend.
Aggarwal’s decision to merge his brother’s company with Ola comes at a time when the company is facing a number of challenges. As its IPO preparations are delayed, it is hoping to raise $150-$200 million at a valuation of $5 billion, compared to its previous round, which occurred at a price of $7 billion. It has also yet to get the $500 million loan from investors that it secured late last year.
According to sources, while the money has been sent from investors, it is currently sitting in Singapore and has not been repatriated to India because it is awaiting authorization from the RBI. Ola has already paid $10 million in interest on this loan.
Ola was previously valued at $7.3 billion when it raised $139 million in Series J capital led by Edelweiss PE, IIFL, and Sunil Munjal-led Hero Enterprises, in what appeared to be the final round of funding before its IPO. Prior to the $139 million, the company secured $500 million from Warburg Pincus and Temasek, giving early investors Tiger and Matrix a stake in the company.
Founder and CEO Bhavish Aggarwal stated at a Reuters Next conference in December last year that Ola intends to go public in the first half of 2022.
Aggarwal also discussed intentions to develop a super app that would provide not only mobility but also loans and microinsurance. Ola has also been investing substantially in its rapid grocery delivery service, Ola Dash, as it looks to expand beyond ride-hailing, which has suffered as a result of the pandemic. Uber, for example, gets more money from food delivery than it does from its main ride-hailing operation.
To be sure, Ola is not the only firm delaying its IPO owing to the present market conditions. Two other SoftBank-backed startups, Delhivery and Oyo, have also postponed IPO ambitions as technology stocks in India and the United States have taken a beating, prompting investors to question if the historic bull run and party powered by low-interest rates is coming to an end.
This isn’t the first time Ola has raised financing at a lower valuation than its previous round. It raised $330 million in early 2017 at a valuation of $3.5 billion, compared to the $5 billion it raised in its last round.
In recent months, the company has lost several executives, including 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: Ola, the ride-hailing company, and Ola Electric, which has big hopes to disrupt the electric two-wheeler sector. It began delivering its electric scooters in December of last year, a month later than its initial plans of an October delivery date.
While Covid-induced lockdowns harmed its ride-hailing business last year, it has now begun to rebound as India has opened up dramatically in recent months.