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Wednesday, 04 July, 2018, 12 : 04 PM [IST]

Local e-commerce cos continue global acquisitions

Disha Shah Ghosh
In recent years India has witnessed a series of mergers & acquisitions in the travel e-commerce space. Either global brands have forayed into India by acquiring stakes in domestic OTAs, or home-grown companies have expanded their geographical reach via the consolidation route. In fact, the Indian travel e-commerce service providers have adopted an aggressive approach, beating far more established industries in the country’s economy, if one takes a closer look at the number of M&As that have been undertaken in the past few years. These acquisitions are a testimony to the fact that the Indian OTA space is all about gaining a larger market share, reducing price points and increasing valuation. While survival of the fittest has become the order of the day, and with customer acquisition being an expensive proposition, inorganic growth seems to be a favourable approach among online aggregators, despite the pressures of integration on the already stressed bottom lines.

The latest travel e-commerce platform to join the list of companies treading on the consolidation path is Cleartrip, which has made it’s first-ever acquisition of Flyin, the largest OTA in Saudi Arabia in a cash-and-stock deal. Notably, in the immediately preceding two financial years, Cleartrip has nearly achieved break even. With the current acquisition, the online aggregator is set to expand its reach in the Middle East & North Africa region.

In 2010, Cleartrip had launched its operations in the UAE. According to Aditya Agarwal, Head of M&A and Strategy, Cleartrip, “Over a period of time, Cleartrip has emerged as the leader in the online air ticketing space in the UAE, commanding a market share of 60-65%, and this gave us the confidence to diversify in Saudi Arabia. We realised that Saudi Arabia is a different market compared to the UAE, much like how India was over a decade ago. With this acquisition, Cleartrip now commands a market share of 53% in Saudi Arabia, and we are excited about this opportunity.”

The Indian OTA-story so far

According to various media reports, the Cleartrip-Flyin deal is valued between USD 50 and 70 million; however, Aditya Agarwal, Head of M&A and Strategy, Cleartrip, says that they are bound by confidentiality obligations on the deal size. “It is a very large transaction, probably among the largest transactions in the Internet space in the region; and almost doubles our scale in the Middle East.”

TravelBiz Monitor spoke to analysts and experts who are unanimous in their opinion that overseas consolidation in the travel e-commerce space is a natural progression because booking air tickets online has gained acceptance in India, and OTAs are now matured businesses since their inception over a decade ago. They believe that the online travel space globally is still the fastest growing, and the opportunity lies in tapping newer geographies rather than burning cash in the existing business scenario in India with cut-throat discounting.

Chetan Kapoor, Research Analyst – Asia Pacific, Phocuswright, says, “The density in the Indian online market has hit the crescendo, with MakeMyTrip acquiring ibibo, Paytm venturing into the travel business and Yatra getting listed. It has become imperative for players to find their niche, explore new avenues for growth, and every OTA is playing on its strategic strength. The biggest player MakeMyTrip has emphasis on the true Indian opportunity both in the domestic and outbound; and particularly for Cleartrip it was a conscious decision that while the India business is growing, they did not want to compete aggressively here and bleed out. In that context, it looked at markets, which were less competitive and virgin territories, and Saudi Arabia perfectly fits the bill.”

Consolidation is evolution for any travel company, particularity a retailer. The beauty of the OTA business today is now it is easier than ever before to expand in newer markets with multiple partners as solutions are available to support digital payments, language interface and back end technology, Kapoor states.

Echoing similar views, Sriram Rajmohan, CEO & MD, Club7 Holidays Ltd, says that the online travel space has become a giant battlefield with consolidation and transformation in business models. “If one

takes a closer look at the trend, meta search players are entering into transactions, and OTAs are venturing into holiday planning. This trend of acquisition indicates there is space for emergence of mega online travel retailer.”

Rakshit Desai, MD, FCM Travel Solutions - Indian Subsidiary of Flight Centre Travel Group, Australia, believes, “Indian travel companies have had some success in Middle- Eastern markets with a demonstrated ability to understand cultural nuances and develop propositions, but success was largely limited to B2B. Tech-focused B2C travel businesses need to prove they can scale rapidly by deploying a common platform across geographies and we’re seeing that beginning to play out. It’s a logical progression.”

Dynamics of the Cleartrip-Flyin deal

The transaction will enable both companies to leverage new technologies, talents and business intelligence to strengthen their travel offerings in order to cater to a diverse customer base. With this deal, Cleartrip will now enjoy a wider outreach and a larger client base in the Middle East & North Africa markets, providing economies of scale as well as enhanced competencies and regional knowledge.

Together, the combined company will have over 60% market share throughout the Middle East region, Cleartrip said in a media release. “India is cost-sensitive, dynamic and demanding market; and our experience in India is the template that we will replicate in Saudi Arabia. The online penetration in the Middle East is only 20%, and it is an opportune time to introduce products beyond air tickets as the market is gaining confidence in online bookings,” says Agarwal.

Besides Saudi Arabia, Flyin has a strong footprint in Egypt as well. It has its technology set up in Hyderabad, while Cleartrip’s team is based out of Bengaluru. This will allow both parties the benefit of synergising technology effectively. Discussions for the deal were underway since the past few months, and both companies are now looking at increasing profitability in the long run. “Approvals from all the key authorities for the Cleartrip-Flyin merger are in place. We have tried to keep a fine balance between growth and profitability. In the past 8 years, Cleartrip was growing at an average 30-35% CAGR, without compromising on profitability. Both Cleartrip and Flyin have been operating at near break even level for the past 2 years, and that was one of the main criterias for selecting the right partner. We wanted to expand to newer markets in the Middle East region to fuel the next phase of growth,” Agarwal states.

He believes that benefits of the deal are multi-fold as it is “strategically important transaction for Cleartrip”; after India and the UAE, the focus is now on growing the business in the Middle East and North Africa. “All these markets are high traffic corridors, and important to our larger geographic strategy of becoming OTA of the emerging markets, and eventually move to the larger African continent. Cleartrip has every intention of investing in this product. We will maintain the existing architecture of Flyin in Saudi Arabia because of brand recall, while integrating our world-class initiatives. The coming few months will be challenging in terms of integration.”
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