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“It may seem the deal is undervaluing Yatra, but it is not”

14 July, 2016

One of India’s fastest growing online travel agents and consumer travel platform Yatra Online has entered into a merger agreement with Terrapin 3 Acquisition Corporation, a NASDAQ-listed special purpose acquisition firm.

The deal, which values Yatra Online at $218 million, was announced on July 14. Post the proposed merger, Yatra will be listed on NASDAQ under the symbol ‘YTRA’.

In an interview with VCCircle, Yatra’s co-founder and CEO Dhruv Shringi talks about why the company decided against listing in India and how the deal will strengthen the company’s balance sheet and provide liquidity to its shareholders and employees.

Edited excerpts:

How is it a winning deal for Yatra?

The deal, after successful completion, would provide Yatra at least $100 million of capital on its balance sheet, going up to a $150 million, thus, significantly strengthening the balance sheet. Secondly, it will provide liquidity to our shareholders and to our employees. Having said that, a listed company, at the end of the day, is a currency that you can use for M&As or expansions.

Why did you opt for a backdoor listing in the US?

This is a more innovative approach and is not something which is typically adopted out of Indian market. Given the volatility here, this kind of deal adds a bit more of certainty associated with the transaction and the listing process is also shorter. Also, it is the most flexible structure that one can create from the listing point of view.

Did you consider listing in India? If not, why?

We did explore that option but our sense was that the market doesn’t have enough depth for the transaction of this nature. Large numbers of players, be it Chinese or Latin companies, MakeMytrip are all listed on the NASDAQ. You need peers to make sure there is enough analyst coverage that is happening to create the market for the stock.   

At an enterprise value of $218 million, you are just about a fourth of MakeMyTrip’s market cap. Isn’t this reverse merger undervaluing Yatra? Or the idea is to leave something for new shareholders as it formally lists?

The value is $218 plus an additional of $35 million earn-out, you are talking about a total of $253 million. In an IPO, you are also to leave money on the table for the new investors to come, which is about 10-15%.  Keeping all these things into account, it might appear that it is undervaluing Yatra, but it is not.

Any imminent changes in the top management post the deal?

The same team will run the business. 

Any specific new feature or product you plan to come out with soon?

We are working on Homestays, a product line that we have introduced and would be requiring enough capital to scale it up. 

Did you also evaluate strategic M&A offers before taking this decision?  If yes, how recent was that and why did you not go ahead?

No. We felt that there is a lot of growth opportunity in front of us and we don’t want to curtail that by going for any kind of M&A at this point. We would rather raise capital put that on balance sheet and grow the business and probably few years down the road think about that.

Any timeline for breaking even at an operational level? 

Breakeven is not too far from where we are now.

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“It may seem the deal is undervaluing Yatra, but it is not”

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