Why Microsoft investing in OYO?

How this could be a Win-Win deal for both OYO and Microsoft.

 

Microsoft is in talks to invest in online hotel chain OYO at a $9 billion valuation prior to IPO of an undisclosed amount and with this the Microsoft later can get more ownership in future in OYO by further investments.

This investment turns the OYO into a Decacorn (a super unicorn).

Oyo is the largest hotel chain in India and sixth largest globally. It is present in over 415 Indian cities with 18,000 properties in India.

It has over 1 million rooms globally and over 23,000 exclusive hotels across 800 cities.

Recently OYO became the first Indian start-up to be independently assessed by the world’s leading credit rating agencies— Moody’s and Fitch.

Through this OYO Hotels & Homes secured $660 million in debt financing from global institutional investors at 850 basis points to service its existing loans. Its offer was oversubscribed almost 1.7 times (Which is a Positive sign), along with a total commitment of around $1 billion from leading institutional investors.

It is the first Indian firm to raise capital via term loan B (TLB) route. TLB refers to a portion of senior secured syndicated credit facility from international institutional investors.

Significance of Microsoft’s investment to OYO:

•  This shows that OYO’s 'normalcy will return'. This will be seen as a big boost to OYO.
•  OYO currently suffers an image and business loss. A Microsoft investment will be a very valuable support.
•  OYO might also utilise Microsoft's cloud services from now.
•  The platform which the OYO is building and scaling from now will have a strong tech and cloud service support by collaboration with Microsoft.

 How this investment be seen from Microsoft point of view:

•  This will be a big moment for Microsoft in India as this will be the first big investment in a reputed brand by it.
•  Microsoft is a dominant player in the large enterprise and the traditional SMB business, but has a negligible space in the start-ups ecosystem
•  Comparing to IBM, Google and Amazon Web Services (AWS), Microsoft is perceived to be a laggard in the Indian start-up space.
•  Microsoft is likely to make decent returns in addition to gaining a strategic customer in the Indian start-up space before its IPO.

Ultimately OYO will get its business and image back on track and Microsoft will make inroads into the Indian start-up ecosystem by this big ticket to OYO.