Amid internal battles, Housing bid to buy PropEquity stumbles

An acquisition Housing.com has been aggressively pursuing appears to be on hold amid controversies at the online real estate company. Negotiations between Housing.com and PropEquity, a Gurgaon-based real estate data and analytics platform, has hit a road-block due to differences over valuation, three people familiar with the matter told VCCircle.

In response to a query, Housing CEO Rahul Yadav said the talks are stuck over certain "tax issues". "After that, we got busy over last two weeks," Yadav said in an email. When asked if the deal was put on hold, he replied "No further comments".

In February, this website was the first to report that Locon Solutions Pvt Ltd, the company that owns Housing.com, was in talks to acquire P.E. Analytics Pvt Ltd, the owner of PropEquity.

According to sources, there are serious differences between Housing.com's investors and CEO Yadav over the valuation of PropEquity. While, initially, there were talks of the deal being valued at Rs 80 crore, the valuation estimation of Housing investors including SoftBank, Helion Ventures and Nexus Venture Partners is less than half of that, one of the persons quoted earlier said.

With investors now exercising a larger control over the company's day-to-day operations, the entire deal is being re-looked at, the source said.

PropEquity, which has a subscription model, had recorded revenues of Rs 13.7 crore and losses of Rs 70 lakh for the year ended March 31, 2014, according to a filing with the Registrar of Companies. Its clients include real estate private equity investors, developers and those in the BFSI industry who use the platform to spot market trends and generate macro/micro analytics in the residential real estate sector. It claims of covering over 45,000 projects of 8,200 developers across 40 cities in India and it adds about 500 new projects every month.

PropEquity, which employs about 250 people, is majority owned by American hedge fund Och-Ziff Capital Management Group. It was founded by CEO Samir Jasuja.

The deal was expected to give Housing.com a ready revenue stream from B2B clients as the company, still being in product development mode, is also under pressure from the board and the investors to show revenues.

Meanwhile, Yadav's latest move – to gift his entire personal shareholding to the employees of the company – has only aggravated his already strained relationship with the investors. Sources said investors are miffed for two reasons. For one, they were not consulted about his plans to gift the shares as their waiver of right of first refusal was necessary as per the shareholders' agreement.

Another reason is the valuation of Yadav's holding – Rs 150 to Rs 200 crore – which was put out in the company's official statement. This was grossly inconsistent with the overall consensus about the company's valuation.

Importantly, investors are not comfortable with a valuation number being made public in a casual manner via an official statement. Private companies - especially VC-backed ones - guard financial and valuation details close to their chest.

Another source, who didn't want to be named, also questioned the rationale of valuation. "During the last fundraise five months ago, the company was valued around Rs 1,800 crore (over $280 million).

Going by that valuation, Yadav's 4.57 per cent stake would be worth Rs 70-80 crore. If his stake is to be valued Rs 150-200 crore, the company must now be worth Rs 3,300-4,400 crore. That is clearly an exaggeration," said the person quoted above.

The fact is the latest twist in the Housing.com saga has caught investors on the wrong foot again. Investors had persuaded Yadav to stay on as CEO at the board meeting held on May 5th after Yadav had sent a harshly worded resignation letter in which he scornfully mentioned the board as "not intellectually capable" to have a "sensible discussion".

Following the compromise at the board meeting, attended by representatives of largest shareholder SoftBank, Nexus Venture Partners and Helion Ventures, Yadav withdrew his resignation and also apologised for his "unacceptable" remarks.

But the latest incident is not giving any comfort to investors. "Investors may have thought, with stricter controls in place, Yadav staying on as CEO was the best option. It is a big question if the latest incident vindicates that position," said the source.

Moreover, the attention has shifted to firefighting rather than running the business. The biggest fallout of all this is it is a big distraction for employees, according to a company insider.

Housing.com, which is known as an innovator in the online property search with verified listings, data science lab, price heat map, demand-supply map and so on, has won investors like Japan's SoftBank in quick succession to raise $120 million in five rounds over three years.

The company had recently undertaken a massive rebranding exercise where, according to a Mint report on May 8th, Housing has spent about Rs 100 crore for advertising in print and outdoor. Yadav had said in the same interview to Mint that the company still has $50 million left in the bank.

Housing competes with PropTiger in which News Corp that owns the parent of this website holds 25 per cent stake.