Mahindra and Mahindra signs deal to acquire 55% stake in Meru

Mahindra and Mahindra Ltd (M&M) on Saturday announced signing a share subscription and shareholder agreement to acquire up to 55 per cent stake in ride hailing company Meru Travel Solutions Private Limited in tranches. In a regulatory filing, the automaker said that it would make a primary investment of up to Rs 103.5 crore for the stake acquisition but the "final purchase price will be arrived at after making customary closing adjustments".

The agreement also envisages that M&M "would have right of call option to acquire shares from certain existing investors of Meru" for an amount not exceeding Rs 98 crore. This would reportedly cover the remaining 45 per cent stake in the company. "The Company [M&M] is keen to grow its presence in shared mobility space and by acquisition of stake in Meru, the Company will enter the corporate shared mobility space which is an area of strategic interest," read the regulatory filing.

The first tranche of investment, which is expected to be made around end-October, will give M&M the right to appoint a majority of the directors on the board of Meru and as such it will "control the composition of the board". Moreover, Meru and its subsidiaries, namely Meru Mobility Tech Pvt. Ltd, V-Link Automotive Services Pvt. Ltd and V-Link Fleet Solutions Pvt. Ltd, will become units of M&M.

Once the deal closes, private equity firm True North will see its stake in Meru come down from 80 per cent to 35 per cent, Managing Partner Vishal Nevatia told Mint. True North first invested in Meru in 2007, when it was called V-Link Group, and used to provide fleet management solutions to media houses and corporate clients. Since then it has invested about $80 million in Meru and will look to exit in the next two to three years.

"Mahindra's investment will help Meru plan for a new course of growth. It is the only cab aggregator in India which is cash-positive and profitable. Mahindra also wants to tap into the sharing and rental mobility space with Meru, because automobile firms today realise that selling cars is not the only way to sustain growth," he added.

Meru, however, has seen its revenues consistently dip over the past couple of years. In the last fiscal, the holding entity reported consolidated revenue of Rs 156.6 crore, down from Rs 277 crore in FY17 and Rs 190 crore in FY18. Nevatia attributed the falling revenues to drivers leaving Meru in the last two years for app cab operators such as Ola and Uber, which were burning cash and offering better incentives. But with the rivals now rationalising costs, he expects the drivers to come back to Meru's platform, helping it to get back on the growth track.

M&M is not the first automaker to show interest in the ride hailing space. Earlier this year, Hyundai Motor Co and its affiliate Kia Motors Corp  invested Rs 2,000 crore in market-leader Ola.

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