VCCircle

This was probably the reason why Travelguru recently gave $25 million valuation to Desiya. In October, VC Circle first reported about Travelguru acquiring online hotel consolidator Desiya.com. It's the first M&A in Travel 2.0 - the second wave of online travel portals. In 2004, although Kuoni Travels acquired hotel booking engine Resnet from Traveljini, an ICICI Venture funded company, only the industry noticed that deal. But what is striking this time is the valuation of the acquisition. The Economic Times last week reported that the Desiya deal was done at $25 million (in stock mainly and a little bit in cash). If the number is true, this clearly is one of the largest deals in Indian online space, after, of course, Sify's 1999-acquisition of IndiaWorld for $115 million.
The industry reaction is mixed on the deal size. Some say it could be hyperbole, while some say it might not be completely unrealistic. Desiya, founded in 2005, claims to have 1,500 travel agents and 250 travel portals among it's clients. It also claims to have about 2,800 hotels in its inventory all over India, while registering 600 transactions a day (over 500 B2B transactions and 100 inbound hotel bookings). VC Circle spoke to Amit Taneja, 32, the founder of Desiya and a former executive of Expedia in the UK, on the sellout and where the combined business is headed.

Why did you sell?
In terms of our presence, we are still at an early stage in an industry which itself is so nascent. In our own right, we have been doing quite well. By joining hands with Travelguru, we are set for the bigger game.

The valuation of $25 million? How do you explain that?
It's in accordance with the long term potential of the industry. India today is considered one of the fastest growing aviation markets. As internet users grow, the number of people making travel arrangements online is expected to increase substantially. The hotel category operates on a very high margin, unlike 'air' which primarily is a commodity. With similar seating arrangements, and facilities available in almost all the flights, only cost matters to the end user.
The valuation is explained in terms of the gains that could be leveraged from the growth of this category (hotels). After all, we haven't yet seen holiday planning tools and user recommended travel destinations which make life of a traveller easier. Once we start seeing such interactive tools, online travel sites could move beyond being just online booking engines.

Is it an all-stock deal? Is there a cash component?
It is largely a stock deal with a small component in cash. The acquirer would be able to give you more information.

What is your gross merchandise revenue and the commission revenue?
Sorry, we will not be able to share these numbers.

Why did you sell to Travelguru?
We decided to partner with Travelguru after much deliberation, given the company's vision, range of online services, extensive reach across India and its technological capabilities. They had been our clients and we share a comfortable relationship, both professionally and personally. We were able to develop a sense of confidence in each other. They understand this space very well and had expressed sufficient interest in this. We will continue to be run as an independent subsidiary of Travelguru.

What does this acquisition mean to both Travelguru and Desiya?
The acquisition is strategic and should not be looked at merely as a financial acquisition. We thought over it. Joining hands will make the combined entity the no.1 in online hotel consolidation market. The key challenge for local OTAs is the technology platform, mid and back office systems. This is where a company like Desiya with its global experience and expertise, coupled with localised offering would be able to differentiate. The teaming up would mean delivering a great value proposition and good customer service both from a consumer point of view and B2B point of view.

Will you continue to be a hotel aggregator? Any plans to get into airline aggregation?
Yes, I will continue with my plans of being a hotel aggregator and moving up the value chain by integrating with many more five star hotels, structuring the supply chain and consolidating with suppliers. With the kind of revenues, expertise and customer value that we have created, I would rather continue focusing on this (with a high commission revenue basis), and there is more game here than venturing into airline aggregation space. Probably, we are open to airline aggregation space later, but not in the short term.

What will be the new management structure post-merger?
I will continue taking care of the online B2B activities as I have been doing previously. There has not been a major revamp in the organisational structure as Desiya will run as an independent subsidiary to Travelguru. And by very nature of the two businesses, the skillset required is complementary to each other. But new roles will certainly emerge on the managerial side as the business evolves. No short term change as of now.

What is the future course of action?
Integration is the high priority job in hand. Identifying synergies and people integration of the two portals will be completed by January. Technology integration will take around four months.

Is the online space going to witness more consolidation in the times to come?
Yes, as the volumes keep growing, there is much more consolidation and activity to be seen in the online travel space. There are players competing aggressively and waiting to get the larger pie of the internet market. There are international biggies who are doing their homework on this, and watching this space very closely. They might have not made any formal announcements yet, but niche travel sites like Orbitz, Expedia or Viator, Booking are all looking at India. With Travelocity already entering the Indian market, this space will see a lot more consolidation and activity in three to four months from now. Also, there are a lot of offline players looking at online presence, now.

Is there any impact of rupee appreciation against the US dollar on the business?
This certainly will pose indirect implications. There will be an slack in the number of inbound tourists in the overall sector with occupancy of the hotels dipping in the tourist season and India has the most expensive destination hotels in Asia. Hotels in Thailand and Singapore are much cheaper. In terms of rupee appreciation, this does not really matter because our commission on the hotel tariff is actualised as a percentage commission in the Indian currency.