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Perplexed. Agitated. Vaibhav Aggarwal just wanted to talk.

Only a few days back, he’d received word that MakeMyTrip (MMT) might be contemplating throwing FabHotels out of the aggregation website. Not because of any fault of his or his company’s. Simply because MMT wanted a deeper relationship with Oyo, one of FabHotels’ competitors. And through that, with SoftBank. And through that, access to money from an investor with billions of dollars who is out to upend industries and business models around the world. A deal with Oyo hinged on the condition that both FabHotels and Treebo Hotels must be kicked out of MMT. Or so he was told.

When Aggarwal first heard these rumours, he thought, nah, far chance. We are partners. MMT would never do that.

About ten days later MMT did, by sending a termination letter to his inbox.

And so, Aggarwal felt the need to talk. He asked for a meeting with Rajesh Magow, co-founder & CEO of MMT.

“Hi Rajesh, there was no need for this.”

“Sorry, Vaibhav. It is just business, nothing personal,” said Magow.

The meeting lasted all of two minutes.

A bottomless pit

Let’s get the urgent context out of the way first. And bear with this number-heavy part.

Around 18 months back, MMT acquired ibibo. Back then, ibibo was one of MMT’s biggest competitors, and the period running up to the acquisition witnessed cut-throat competition to win customers, especially in the hotels’ booking business. In this period, circa 2015-16, MMT had missed profits estimates for seven consecutive quarters primarily due to high marketing costs. The deal with ibibo was heralded as a game changer. The merger was structured as a share swap, giving the owners of ibibo a 40% stake in the combined entity.

The deal was structured beautifully. Not only did MMT not have to shell out any cash from its balance sheet for the deal, as a key condition to the completion of the transaction, the owners of ibibo, South African conglomerate Naspers and Chinese behemoth Tencent, contributed a pro-rata share of consolidated net working capital in cash to MMT.

Simply put, MMT got $82.8 million in its kitty, not to mention two powerful and deep-pocketed investors with a long-term view.

This merger created an entity that became the market leader in the online travel category in India; both in terms of numbers—collectively processing 34.1 million transactions in FY16—and market reach and coverage, with MMT operating in the premium and mid-market hotel segment and Goibibo dominating the budget hotel category with valued sub-brands such as redBus, Ryde and RightStay. That’s everything, from homestays to bus ticketing, a one-stop shop for anyone travelling in India.

AUTHOR

Ashish K. Mishra

Ashish edits and writes stories at The Ken. Across subjects. In his last assignment, he was a Deputy Editor at Mint, a financial daily published by HT Media. At the paper, he wrote long, deeply reported feature stories. His earlier assignments: Forbes India magazine and The Economic Times. Born in Kolkata. Studied in New Delhi – B.Com from Shri Ram College of Commerce, Delhi University. Works out of anywhere, where there is a good story to be told.

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