India: Oyo Rooms acquires struggling rival Zo Rooms in all-stock deal

Oyo Rooms, the budget hotel-booking app run by Oravel Stays Pvt. Ltd, has acquired smaller rival Zo Rooms, SoftBank Corp. said in its earning report on Wednesday.

Oyo Rooms, in which SoftBank has a stake, bought Zo Rooms in an all-stock deal, according to two people familiar with the transaction. The founders of Zostel Hospitality Pvt. Ltd, which runs Zo Rooms, will get a 7% stake in the combined entity, the people said, requesting anonymity.

The transaction comes amid a slowdown in start-up funding as investors are becoming increasingly risk averse and unwilling to fund start-ups that aren’t market leaders in their respective sectors. The acquisition comes as Zostel Hospitality failed to convince investors, including existing ones, to pump in money. Zo Rooms raised roughly $35 million from Tiger Global and Orios Management in 2005.

Oyo Rooms, on the other hand, is on a firmer footing, having raised $100 million from SoftBank in August.

Oyo reported a 34-fold growth from the previous year with used rooms nights rising to 895,000 in the October-December quarter of 2015, SoftBank’s earnings release said.

The release added that the period also saw, “acquisition of Zo Rooms,” without giving details.

Mint reported in December that Oyo was in talks to buy Zo Rooms.

Zo Rooms had close to 300 employees and 20,000 listed properties across 30 cities. However, not all of this will be absorbed by Oyo, one of the people cited above said.

In comparison, Oyo has been operating in more than 165 Indian cities through close to 4,500 hotels. Last month, it started operations in Malaysia, the company’s first foray outside its home market.

With the acquisition of Zo Rooms, Oyo becomes a clear market leader in the budget accommodation segment which recently saw the entry of large online travel firms, including MakeMyTrip, Yatra Online Pvt. Ltd and Goibibo. However, the revenue potential of the hotel aggregator websites is still remains unclear given their relatively short existence. On the other hand, the entry of online travel agents, with their large customer bases is likely to intensify competition in an unproven business.

Oyo declined to comment on this.

Still, the market potential is large and analysts have frequently said that the supply of hotel rooms in India is way below demand.

Budget hotel start-ups invest millions of dollars in branding unorganized and independent hotels, training their staff and also buying inventory (hotel room bookings) for months.

Occupancy rates inevitably tend to remain low, partly as these brands are new. Despite being relatively well-funded, budget hotels have failed to show meaningful revenues so far, investors say.

Also read:

Softbank injects $15 million in Indian real estate portal Housing.com

India: Oyo Rooms looks to buy struggling rival Zo Rooms

India: Is OYO Rooms is alienating customers due to misplaced priorities?

This story was first published on Livemint.com

Singapore Reporter/s

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Following vacancies can be applied for (only in Singapore).   

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.