SoftBank-backed hotel aggregator Oyo Rooms is looking to acquire Tiger Global-backed smaller rival Zo Rooms, two media reports said on Thursday, citing three unidentified people each.
The talks began about three weeks ago and are in a preliminary stage, The Economic Times reported.
The move comes as Zostel Hospitality Pvt Ltd, which runs Zo Rooms, is struggling to raise fresh funds, the Mint reported.
While Zoster is in talks with other investors, they are not even near to close the round. The Mint report further suggests, that If Zo Rooms doesn’t get the required financial backing, they will have to shut down operations. The company is believed to be under pressure to cut costs and is going to shut down its operations in Goa.
The report further suggests, that Oyo Rooms had approached Zo Rooms last month with its acquisition offer. While nothing has been confirmed yet, it seems that both the companies have an opportunity here at hand.
None of the companies in this space have been able to generate significant amount of revenues. As per experts, the merger of both the companies can change that. Oyo currently books around 2,50,000 rooms every month while Zo Rooms books about 1,00,000 rooms.
As for Oyo, even though it leads this domain in India, it might face a stiff competition in this segment as three of India’s biggest online travel companies are all stepping into this segment – MakeMyTrip, Yatra and Goibibo. Interestingly and honestly unsportingly, these online travel portals have also removed all the listing of Oyo Rooms and Zo Rooms from their website, hinting that they want to build their own independent businesses.
While the market potential may be large and analysts have frequently said that the supply of hotel rooms in India is way below demand, building a viable business in budget hotels is challenging.
Budget hotel start-ups invest millions of dollars in branding unorganized and independent hotels, training their staff and also buying inventory (hotel room bookings) for months.
Occupancy rates inevitably tend to remain low, partly as these brands are new. Despite being relatively well-funded, budget hotels have failed to show meaningful revenues so far, investors said.