Deal focus: Affirma generates 8x return with India’s TBO

Quality companies make private equity look easy. India’s TBO.com, a software provider for travel agents, hasn’t received a substantial primary capital injection since 2017 when Naspers paid USD 18.5m for a 52% stake. Nevertheless, it expanded during the travel industry hibernation of COVID-19, growing annual gross merchandise volume from USD 1.1bn in 2019 to USD 2.7bn as of the 12 months to March.

TBO entered the pandemic with a healthy cash balance, a pipeline of M&A opportunities, and plans for a global footprint. Affirma Capital, which bought 49% of the company from Naspers for INR 3bn (then USD 42m) in 2018 helped it effectuate three acquisitions, opening up new markets in the UK, Maldives, and Thailand.

“It was a great opportunity to build out the team globally. Many other travel companies were struggling, so we could get high-quality people on board,” Udai Dhawan, head of India at Affirma, said. “There was a lot of uncertainty at the time, but when you have staying power, you have the luxury of being able to make these decisions. We knew we could ride this out, so we took a long-term view.”

During this period, the company hired 58 sales personnel in 25 countries and 12 managers to drive growth in various departments and geographies. As of October 2021, there were 309 on-ground sales personnel in 42 countries to onboard new buyers (travel agents) and suppliers (hotels and airlines).

Indeed, despite revenue falling 75%, COVID-19 became TBO’s boom time and inspired a filing for a domestic IPO in late 2021, seeking to raise USD 253m. The prospectus showed a loss of INR 341.4m in the 2021 financial year versus a profit of INR 729.3m in 2020 – although for the six months to September 2021, the company posted a profit of INR 177.4m.

“The founders are truly exceptional and did a fabulous job of managing the P&L and balance sheet,” Dhawan said.

Ultimately, it was decided the timing was not right, and the IPO was shelved. But the filing process generated significant interest in the market. This led to General Atlantic acquiring a significant minority stake by taking out some of Affirma’s position. Affirma generated an 8x return on the exit in US dollar terms.

The plan is to continue the M&A spree and file for another IPO “very soon,” according to a source familiar with the situation. General Atlantic will not sell any shares as part of the IPO. Growth is expected to be robust amidst shifting demographics, rising disposable incomes, and greater participation from emerging economies. TBO clocked USD 10m in sales in a single day last April.

“The founders have a large stake, they’re young, and have a lot of hunger. We believe that going public just makes it easier for this company to raise capital, but nothing else in the growth profile changes,” the source added.

The key to TBO’s post-pandemic reinvention is in its ability to internationally scale software for travel agents, a largely mom-and-pop industry. This means devising tools for managing teams of bookers big and small, while juggling thousands of hotels, cruise lines, and insurance packages in different markets.

The technology and call-centre support is all based in India, but the biggest markets are now the Middle East, Europe, and Latin America. TBO now serves more than 145,000 travel agents and more than 1m hotels in 120 countries using more than 50 currencies.

“When we entered, this was largely an Indian business, but the international share of the business has grown significantly,” Dhawan said. “That has resulted in the hotel side of the business increasing vis-a-vis the airline business. Hotels are much more fragmented, so there’s a significant opportunity for value-add there.”

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• Topics
• South Asia
• Trade sale
• Expansion
• Technology
• India
• Affirma Capital
• General Atlantic
• IT services
• enterprise software
• Travel