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Oyo’s $525M G6 Deal Signals Focus on Global Growth, Upcoming IPO

Blackstone claims that it invested significant capital to enhance the brand value of Motel 6. This in turn makes the acquisition by Oyo lucrative

Hospitality start-up Oyo is all set to buy G6 Hospitality, a US-based hotel brand that is the parent company of the Motel 6 and Studio 6 brands. The $525 million acquisition from US investment firm Blackstone Real Estate was an all-cash transaction. 

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This is so far one of the biggest acquisitions by Oyo. Gautam Swaroop, CEO of OYO International, said in a statement that this acquisition is a significant milestone for a start-up company like Oyo to strengthen their international presence. The transaction is expected to close in Q4 2024, subject to customary conditions. In the transaction, Goldman Sachs led as Blackstone’s advisor, with legal counsel from Simpson Thacher & Bartlett LLP. 

G6 Hospitality is already a household name in the USA. Under the Motel 6 brand and the Studio 6 extended brand, the company has nearly 1,500 economy lodging locations both in the United States and Canada. Motel 6 was acquired by Blackstone in 2012 for $1.9 million from French hospitality group Accor. Blackstone claims that it invested significant capital to enhance the brand value of Motel 6. This in turn makes the acquisition by Oyo lucrative.

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Oyo's Global Footprint Expands to Over 30 Countries

The Indian hospitality firm has been focusing on international expansion. In its latest fundraise in August 2024, where it raised Rs 1,457 crore, the company highlighted that they would use the fund for international expansion and growth. The company is currently present in more than 30 countries, which include Europe, Southeast Asia, the USA and the UK. 

With regards to the USA, the company started its expansion in 2019 with the acquisition of US-based hotel Casino Las Vegas for $135 million. Under the structure, while the hotel owners retain the ownership, Oyo takes care of the branding aspect and management services. 

As of now, Oyo operates over 320 hotels across 35 states in the country. The company added nearly 100 hotels in 2023 and it aims to add around 250 hotels in 2024. 

While releasing the company’s results for the financial year 2023-24, Oyo founder Ritesh Aggarwal said in a statement, "I see growth ahead not just in India with emerging travel trends such as premiumisation, spiritual travel, business travel and conferences and destination weddings, but also in our other key markets of the Nordics, Southeast Asia, US and UK. FY25 will clearly be even more exciting.” 

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The company also, in August, acquired French-based Checkmyguest, which manages rental properties, for $27.4 million. The cash and stock deal also included the acquisition of two of the affiliated companies named Studio Prestige and Helpmyguest. So along with the USA, Europe is also a key area of expansion for the company. 

Speaking to The Arc about the same, a source said that Europe will be the most lucrative market for the company in the long term. This is because while the revenue from hotels Oyo onboarded in India increased 1.8 times, the income of the home business in Europe has grown by 2.1 times, added the source. 

While the company has been totally focused on the US expansion, reports indicate that the demand for hotels has been falling in the USA. The demand for US hotel rooms in April reduced by 0.5 per cent, as per real estate analytics firm Costar. According to hospitality data firm STR, April room demand in the United States decreased by approximately 2.7 per cent and 3.9 per cent for both economy and mid-scale hotels, respectively. Additionally, a report by NPR quoted federal data and highlighted that around 200,000 fewer individuals work in hotels and other lodging today compared to before the pandemic. 

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Oyo Faces Criticism, Regulatory Issues in Homeland and Abroad

Oyo started in 2012 by college dropout Ritesh Agarwal. The company, which raised $3.41 billion in 19 rounds so far as per data platform Tracxn, has investors including Lightspeed Venture Partners, Peak XV Partners, Airbnb, and SoftBank Group.

At one point of time company, Oyo, became shrouded in criticism. Several hotel owners expressed grievances about the high commission that was being charged by Oyo. 

Pradeep Shetty, a committee member of the Hotel and Restaurant Association of Western India (HRAWI), told NewsMinute in 2019 that “Oyo has been cheating the hotel owners by using various gimmicks and arm-twisting tactics, which has resulted in huge losses for hotel owners and has disrupted the hotel industry and market.” 

To add to it was the pandemic, which made the company engulfed in losses. As a result, the company’s revenue contracted from $1.8 billion in FY20 to $850 million in FY21. The same year (2020), the company was facing regulatory hurdles in the USA. It was mentioned that the hotel chain was operating franchises without approval.

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A big blow for the company recently was when its valuation was decreased by nearly 75 per cent in its new funding round. Once valued at $10 billion, the company’s valuation reduced to $2.4 billion in its August fund raise as per media reports. The major investor of the company, SoftBank, had also internally cut the valuation of the company to $2.7 billion in 2022. 

OYO Estimates EBITDA to Cross Rs 2,000 Crore in FY26

However, this year, the company is optimistic about its growth. The company recently posted its first-ever net profit after tax of Rs 229 crore in FY24, significantly reducing its previous year’s loss of Rs 1,286.5 crore.

Similarly, the company’s adjusted EBITDA grew from Rs 277 crore in FY23 to Rs 877 crore in FY24.

Now, with the new acquisition of Motel 6, the company also expects its EBITDA to cross Rs 2,000 crore in FY26. As per PTI, this acquisition will add Rs 630 crore to its EBITDA in the coming financial year. 

Now, the company’s focus will be on its IPO plans. Something that it has been planning for a while. In May this year, media reports indicated that Oyo withdrew its draft IPO plans and opted for private funding.

The company filed for its IPO papers in 2021. The Securities and Exchange Board of India (Sebi) in 2023 returned the IPO papers and asked Oyo to file the same again with necessary updates.

After refinishing its existing $450 million Term Loan B (TLB) at a lower interest rate, Oyo is expected to file its fresh IPO papers with market regulator SEBI, as per PTI. While details about the IPO are not known yet, the proposed size, as per reports, will be 40–60 per cent smaller than the Rs 8,430 crore IPO that was supposed to be filed initially.

While there is no certainty about when the company will go public, at an investor call, Navneet Govil, executive managing partner and Vision Fund CFO at SoftBank Investment Advisers, reportedly said in February that the company is expected in the coming year to go public. He said, “There is no rush. All our portfolio companies will go public when the time's right.” It will be interesting to see how the start-up performs in the booming IPO market.

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