Prosus, the global consumer internet group spun out of South Africa’s Naspers, said Tuesday its payments arm PayU has agreed to acquire Indian digital payments provider BillDesk for $4.7 billion (Rs 34,500 crore).
The deal is the second-largest M&A in the Indian tech ecosystem, only behind Walmart’s acquisition of a majority stake in Flipkart three years ago for $16 billion.
The all-cash transaction is on a cash-free, debt-free basis. It comes over three years after talks between the two companies were first reported. A mismatch over valuation pushed the deal talks. Notably, at that time the proposed deal was at one-third the price that PayU finally decided to pay for the company.
Besides PayU, American Express and PayPal were among the suitors, as per media reports then.
PayU said the proposed acquisition will make the company—the payments and fintech business of Prosus which operates in more than 20 high-growth markets—one of the leading online payment providers globally by total payment volume (TPV).
PayU currently operates across three distinct businesses: payments for domestic and cross-border transactions; credit solutions for consumers and small businesses; and strategic investments in fintech companies including Remitly in the US. Its domestic payments and cross-border transactions vertical reported the TPV rising 51% to $55 billion across India, Latin America, Europe, the Middle East and Africa for the year ended March 2021.
The transaction builds on previous acquisitions by PayU in India, including CitrusPay, Paysense and Wibmo.
Bob van Dijk, group CEO of Prosus, said: “We have a long and deep relationship with India, having supported and partnered with some of its most dynamic entrepreneurs and new tech businesses since 2005. We’ve invested close to $6 billion in Indian tech to date, and this deal will see that increase to more than $10 billion.”
Prosus counts in its global portfolio companies such as Tencent, Brainly, Byju’s, Eruditus, LazyPay, Meesho, Movile, OLX, PayU, Remitly, SimilarWeb, Shipper, Skillsoft, Swiggy, Udemy, Mail.ru, Trip.com and DeliveryHero.
MN Srinivasu, co-founder of BillDesk, said: “This investment by Prosus validates the significant opportunity in India for digital payments that is being propelled by innovation and the progressive regulatory framework put into place by the Reserve Bank of India, India’s central bank.”
According to the 2020-21 annual report of the Reserve Bank of India, the number of transactions for digital retail payments has grown by more than 80% from 24 billion in 2018-19 to 44 billion to 2020-21.
Over the next three years, RBI expects more than 200 million new users to adopt digital payments with the average annual transactions per capita rising tenfold from 22 to 220.
BillDesk was founded in 2020 by accounting firm Arthur Andersen’s former employees Srinivasu, Ajay Kaushal and Karthik Ganapathy. The company provides electronic transaction processing services to banks, e-commerce companies, telecom operators and state utilities.
It competes with billing aggregators such as RazorPay and is backed by, among others, General Atlantic, TA Associates, Clearstone Venture Partners and Singapore state investment firm Temasek.
Clearstone and TA Associates were among the early set of investors and are believed to have partially exited in the past. General Atlantic and Temasek had come in around five years ago and had picked up a stake at a valuation of around $600 million. While the early investors will be harvesting high returns, even the late-stage PE backers are likely to pocket around eight-fold returns in the exit, implying an internal rate of return of more than 50%.
TA Associates, in particular, has been on a roll this year with multiple multi-bagger exits and partial exits (click here for a more detailed piece).
Another strategic investor that would get an exit in the transaction is Visa, which had come as a shareholder a couple of years ago. Visa is also likely to triple its money in a short period.
The value of the net assets under BillDesk as of March 31, 2021, was Rs 1,888.1 crore ($256.9 million). The unaudited profit after tax attributable to the net assets for 2020-21 was Rs 270.6 crore ($36.8 million), translating into an embedded valuation of 128 times its last year’s profit. BillDesk was one of the early tech startups to start generating profits several years ago.
Prosus said the purchase price reflects BillDesk’s multi-year track record of strong revenue and profit growth as well as the expectation for continued strong future growth in a rapidly expanding India digital payments market.