đ¤ Why did PayU and BillDesk Break up?
PayUâs parent company just let go of a chance to be the biggest payments company in India. Hereâs why.
The Indian fintech space was ready to witness its version of a Big Fat Indian wedding: the merger of PayU and BillDesk.
Both companies are market leaders in the payments space and coming together would only have made them bigger and better.
But out of nowhere, in a move that came as a surprise to both PayU and BillDesk employees, the parent company of PayU, Prosus NV, called off the deal.
What was behind this break up? ReadOn!
đ¤ When PayU Met BillDesk
PayU entered India in 2011, in the hopes of capturing the vast Indian market, which had recently been exposed to the world of e-commerce and online payments.
And the company has managed to do well: it gained a 15-20% market share and a payments aggregator licence from the RBI.
But with several old and new competitors, growing this market share was proving to be difficult.
So, its parent company decided to use a cheat code: merge PayU with the biggest company in the payments space â BillDesk.
BillDesk isnât just a market leader boasting a 20-25% market share,Â
it is also profitable
has a huge customer base that include high profile clients like the government departments.
banks depend on its SI Hub platform to fulfill recurring transactions after the RBIâs new rules
and, its founders were allegedly planning on leaving the startup soon to launch their own projects, so they would be keen on a merger and PayU could later have complete control over the company.Â
Whatâs more their combined total payment volume would be $147 billion, more than twice that of Razorpayâs $60 billion.
The deal had the potential to annihilate their competition.
So, what went wrong?
â It's All About the Timing
Timing. The deal was proposed way back in 2021.Â
Last year, around this time VCs and investors were showering money on startups.
This year the space is surrounded with gloom and doom, thanks to forecasts about a global recession that is causing stocks to tank.
Especially tech stocks â a factor that is also impacting startups in the sector.Â
VCs are now in the cash conserve mode.Â
Many like SoftBank are even cutting down valuations of portfolio companies.
This may have scared Prosus. It probably thought it was paying too much for BillDesk.
After all, its $4.7 billion deal was the second-largest merger and acquisition in India.
And what happened with Paytm also did not help.
Paytm, which is a competitor of BillDesk and PayU, went public at a super-high valuation of $20 billion, but soon its shares tumbled causing investors to lose billions.
So, Prosus reportedly wanted to trim BillDeskâs valuation.
BillDesk did not agree. So, Prosus took advantage of the long-drawn CCI investigation to get out of the deal. Huh?
đ The CCI Investigation
Any time two major companies decide to merge, they need to get the Competition Commision of Indiaâs blessings.
And in this case the CCI took almost a whole year to give its blessings. Why?
Because this deal had the potential to create a monopoly and wipe out competition.
Whatâs more, BillDesk handles sensitive data of government agencies, Public Service Units and major Indian banks.
The merger would give a foreign company the access to all of this data.Â
And the CCI had received 40 complaints which stated that this deal should not go through.
So, it obviously needed to take its time to come to this decision.
And it did. After a year of watching and waiting, the approval came on September 5, 2022.
Now, it was time to proceed with meeting other deadlines to make sure the merger happened.
But according to the deal signed earlier, BillDesk only had 25 days to accomplish this.
Because the long-stop date (the date by which all conditions for an M&A should be fulfilled) was September 30.
Now, if both parties were still willing to take this deal forward, this deadline could be easily extended.
But Prosus was having second thoughts about spending so much cash.
So, it called off the deal saying BillDesk had not met the conditions of the deal.
And since the long stop date had gone by it would no longer have to pay any break up fees (fees to be paid when a party walks out of a deal).
BillDesk has other plans. It definitely wants to see this deal through. So, it may agree to trim the valuation or drag Prosus to the court.
Though the second option could just be a huge waste of time and money.
Now, BillDesk isnât the only company that has been shunned this way.
Byjuâs, Swiggy, Zetwerk all have seen investors back out of funding deals thanks to the market tanking.
And this raises a lot of questions.
đ§ Questions We Have About the Break Up
Prosus has invested over $6 billion in India in the last few years.
It has even acquired CitrusPay and LazyPay, payment gateways that have helped PayU grow.
And it is betting big on India in the next couple of years as well.
So, does it make sense for it to shut down this deal?
Even if PayU does manage to grow its market share, it will never reach the almost 40% market share it would have achieved by teaming up with BillDesk.
And what will BillDesk do next? Will it consider another merger or will it go public?
Guess we will have to wait and watch to get the answers to these questions.
âĄIn a line: PayUâs parent company is calling off a deal with BillDesk because it thinks its valuation is too high.
đĄQuick question: Do you think this was the right move on Prosusâ part?
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