Oyo Rooms all set to acquire Zo Rooms in all-stock deal
Bengaluru, India | Red Newswire | Dec 17, 2015 Last Updated at 08:25 AM IST.
Seems like the stage is all set for Oyo to dominate the budget hotel market, as it has decided to acquire its rival Zo Rooms in an all-stock deal.
The deal is more of an asset sale and will give a 7% combined stake to Tiger Global and seven founders of Zo Rooms. The acquisition comes after the company wasn’t able to raise fresh funds.
One of the people familiar with the matter said, “It is an all asset sale. In the given deal structure, Oyo will not be taking liability of Zo’s dues.” The person also added that the Zostel Hospitality will also wind up after the deal.
The assets of Zo Rooms include network of 11,000 rooms and its technology; its 11,000 rooms are spread across 50 cities across the country, which will give Oyo more space to expand.
After the transition, Zo Room’s all seven founders will exit and Oyo will absorb 40% of its employees. The transition will be over in two weeks. With this structure of the deal, Oyo would be able to pick what its requirements.
Sanjeev Krishan, Partner for private equity at PwC said, “Asset sale can be of two kinds — one is lump sum, where both assets and liabilities of a business unit are transferred but where corporate tax liabilities get left behind with the seller. The other is piecemeal, which is tax-inefficient (but) where assets can be cherry picked (and) liabilities can be left behind.”
Apart from Oyo-Zo transaction, the budget hotel sector could experience more aggressive consolidation, since startups in this sector are chasing big cities and are running out of money with excessive discounting.
Source: ET Bureau