OYO buys ZO in hotel room consolidation drive

Announcement was made by OYO's largest investor, SoftBank, as part of its earnings presentation

Hotel accommodation aggregator OYO Rooms has acquired smaller rival ZO Rooms, setting the stage for more consolidation in the segment that has brought thousands of smaller hotels and service apartments online.

The announcement was made by OYO’s largest investor, SoftBank, on Wednesday, as part of its earnings presentation. ZO will merge with OYO in a stock-cum-cash deal, with its investors, Tiger Global and Orios Venture Partners (the investors put in $47 million, in two rounds), getting a stake in the larger company.  The transaction value is not known. The sale was concluded last month.

ZO had been slowly laying off employees to cut costs in the six months prior to the sale.  Earlier in the day, rumours of the completion of the deal sparked when the ZO website and app stopped functioning. However, both returned online after a while.

“The deal reaffirms our belief that this segment cannot be run on scale alone. The segment needs budget hotels to be standardised, something other players are struggling to achieve,” said Mohit Gupta, operations head at MakeMyTrip, which entered the budget room aggregator service in November with 'Value+'.

He says MMY is open to inorganic growth but wants this to be sustainable. “We have added about 2,000 rooms from 100 in November and are growing steadily. We want to maintain a balance between growth and scale and are ready to delist hotels if the customer experience isn’t up to the mark,” he said.

Another competitor in the segment, on condition of anonmity, said the deal wasn't a surprise, with one player burning cash to achieve scale and failing. “The winner now will be that player who can not only get scale but also maintain their brand by assuring consistent customer experience,” said the competitor, with presence in over 10 cities. ZO, founded by Paavan Nanda and Abhishek Bhutra, among others, had struggled to keep pace with OYO in fund raising.

In August, SoftBank, Sequoia Capital, Lightspeed Ventures and Green Oaks Capital had invested $100 mn in OYO to help build its base, not only in India but into similar other markets such as Southeast Asia. OYO recently claimed a million check-ins on its platform.