Droom to invest Rs 500 to 600 crore for inorganic opportunities, eyes 5-6 acquisitions in 2 years

Droom Technology, a provider of the technology platform for pre-owned vehicles, is scouting for five to six acquisitions in the next two years to attain an internal target of $18 billion of Gross Merchandise Value (GMV) in the next five years.

Gurugram-based Droom sells vehicles through cloud dealers where sourcing and refurbishment is done by physical dealers. Certification, selling and delivery are done by the company.

ET learns the company is looking for acquisitions in the entire chain – from auto insurance to auto lending. Droom is also in the hunt for an IT service company to attract a talent pool, and is also keen on buying an organized service station chain, such as the likes of Pitstop and GoMechanic.

The company plans to spend around Rs 500-600 crore on acquisitions in the next two year. The funds for acquisition will be a mix of internal accrual and proceeds from initial public offering, said people in the know.

Lightbox-Venture backed Droom Technology plans to raise Rs 3,000 crore from an initial share sale. The company had filed its draft red herring prospectus with the market regulator Sebi in November 2021.

The company is eying a valuation north of $2 billion for its IPO. The last fund raising of the company took place about 15 months before, at a valuation of $1.2 billion.

According to the filing, the company plans to spend around Rs 400 crore on inorganic growth initiatives and Rs 1150 crore on organic growth from funds raised from fresh issue of shares in the IPO.

“The process for choosing acquisition targets has already started and it has recently appointed a consultant to look for inorganic opportunities in the insurance space and recently it turned down a deal to acquire the auto portfolio of a South-based company as it endeavors to be in loan aggregation rather than becoming a NBFC company,” said a senior executive of the company.

An email sent to the company did not elicit any response till the presstime.

With all services available under one umbrella, it will only improve GMV for used vehicles from more vehicles sold, but also buttress revenue from services business accrued from insurance, loan, certification, and service station.

The company currently derives the bulk of its transactional revenue from sale of vehicles, which are around 3% of the sales value of vehicles.

Globally, used vehicle marketplace companies earn half their revenue in vehicle transactions, and the remaining half comes from the service income associated with the sale of pre-owned vehicles.

Droom’s transactional volume picked up significantly during the Covid period. The GMV of the company reached around $2 billion in the current fiscal year. It was $1 billion in FY20, according to the company’s DRHP filing.

The company sold around 13,000-14000 vehicles on average per month last fiscal.

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