Yatra to trade on Nasdaq after $218 million reverse merger

Mumbai: Travel agency Yatra Online Inc. has agreed to reverse-merge with Terrapin 3 Acquisition Corp. in a transaction that assigns an enterprise value of $218 million to the Indian online travel agency and which will see it trade on Nasdaq (as YTRA).

Under the terms of the agreement, the current shareholders of Yatra will own at least 35% of the combined company and the first $100 million from Terrapin will be used to fund the combined company and pay transaction expenses.

Terrapin is a special purpose vehicle (or a company formed for a specific purpose). It was created expressly to facilitate a transaction such as this reverse merger. It will effectively cease to exist after the reverse-merger, which is a term used to describe the acquisition of a listed company by an unlisted one to facilitate listing minus the hassles of an initial public offering (IPO). Terrapin is currently listed on Nasdaq.

The cash infusion is critical for Yatra, which is competing with well-funded local rivals including India’s biggest online travel operator MakeMyTrip Ltd in which China’s Ctrip.com agreed to invest $180 million in January. The latest transaction will allow Yatra, which was reported to be in talks with Paytm (owned by One97 Communications Ltd) for a stake sale, to provide a partial exit to some of its shareholders. They will make a maximum of $80 million from the deal, according to the agreement.

Yatra not only gets access to capital but also gets listed on Nasdaq without the uncertainty and cost of doing an IPO, said Chetan Kapoor, research analyst for Asia Pacific at travel industry researcher Phocuswright.

The combined company will continue to be led by Yatra’s management team under the leadership of chief executive officer and co-founder Dhruv Shringi.

Shareholders of Yatra may receive an additional consideration of as much as $35 million if they meet certain financial objectives during the 18 months after closing of the transaction, according to the agreement.

Norwest Venture Partners, Reliance Venture Asset Management Ltd and Intel Capital are some of the investors in Yatra.

The acquisition-cum-listing gives Yatra much-needed capital to compete with its rivals, said Aloke Bajpai, co-founder of Le Travenues Technology Pvt. Ltd, which runs ixigo.com.

“MakeMyTrip and Goibibo (the hotel booking site of Ibibo Group) raised a lot of cash in the beginning of the year and resorted to heavy discounting in the last six months, as a result the other online travel agents... had been feeling a squeeze on profitability and growth,” said Bajpai.

Launched in August 2006, Yatra, through its yatra.com website, provides travel and hotel reservations for leisure and business travellers in India.

Yatra customers booked more than 2.8 million air travel reservations and hotel stays with total transaction value worth more than $900 million during the year ended 31 March, an increase of 25% from the previous year.

“This deal gives necessary capital to the company (Yatra) and liquidity for shareholders and employees who are holding the shares,” said Shringi in an interview.

“Everything remains same including the brand name of the company, that will have expanded shareholding base. This is a very unique way of going public,” said Shringi, adding that the company is close to reaching profitability. He declined to disclose details.

Nathan Leight, chairman of Terrapin, said the company was created with the “express purpose of partnering with a company that would benefit from a public listing, could utilize our cash resources for growth and generate long-term returns for our shareholders”.

Terrapin raised $212.75 million in its initial share sale in 2014, which is now held in a trust account.

Deutsche Bank Securities Inc. is Terrapin’s capital markets adviser. Greenberg Traurig Llp and Ellenoff Grossman & Schole Llp are representing Terrapin, while Goodwin Procter Llp is representing Yatra.

The Indian online travel market will increase to $10.3 billion in gross bookings in 2016 and online travel agency firms will account for about half of it, according to Phocuswright.

Experts say that as the Indian online travel market matures, the landscape has evolved into a battle of incumbents versus upstarts.

“Consumer acquisition tactics such as intense price wars and cashbacks from well-funded start-ups have driven the incumbents to refill their coffers over the last few months in order to remain competitive, invest in technology and product diversification, and maintain their market leadership positions,” said Kapoor.

Upon listing, Yatra will be the second major Indian online travel agent to go public. MakeMyTrip listed on Nasdaq in 2010. Shares of MakeMyTrip were trading down 1.29% at $16.77 at 8pm on Thursday on the Nasdaq.