Two months after admitting to fudging of accounts, car-servicing startup GoMechanic is in an advanced stage of discussions to sell its business to used car retailing platform CarTrade for Rs 250 crore in cash.
The talks with CarTrade, which are being led by GoMechanic investors, have been on for at least five weeks, said sources familiar with developments. The Morning Context first reported the development on Saturday morning.
The firesale talks come after GoMechanic founder Amit Bhasin in January admitted to financial reporting errors like inflating revenues — a move that forced the company to fire around 70% of its staff. The tech-based car maintenance provider also agreed to have its accounts audited by a third party. “All equity investors are likely to book a loss on their investments in GoMechanic. However, one of their venture debt investors will fully recover their principal amount with some negotiations on interest repayable,” said the source mentioned above.
The source also told FE that the cash from the merger will primarily be used to pay off all outstanding liabilities on the company’s books, especially its debt investor who legally gets the first right to claim dues in a liquidity event.
The source also added that GoMechanic’s key assets such as the network of servicing stations, human resource, and the tech itself are the only key considerations in the talks with CarTrade.
Both parties are likely to agree on a valuation of $25-30 million for these assets, which is an 89% haircut from the original valuation of $285 million that the car servicing startup held when it last raised $42 million in its Series C round led by Tiger Global in 2021.
“Whatever physical infrastructure that GoMechanic holds, including servicing stations and technology, will be useful for CarTrade, especially for the refurbishment of used cars. So for them, GoMechanic is definitely an incremental asset which is of good quality,” said the source quoted earlier.
Prior to the merger talks with CarTrade, GoMechanic had also explored sale talks with other automobile platforms, including Spinny and Cars24, but these talks did not materialise over differences in valuation, the source added.
Even prior to these talks, GoMechanic’s key investors had begun writing off their investments. On January 20, Orios Venture Partners, which owns 17.1%, had written down the value of its investment in the company. While the value was not mentioned, sources said the markdown could erode about 60% of Orios’ investment value, subject to findings from the forensic audit that EY was carrying out.
“While our exposure from Fund 1 was 7.79% of the committed corpus, at the last round’s valuation, the asset represented around 1.27x of the fund’s multiple on invested capital (MOIC). We are writing down this value,” Orios’ told its limited partners in a letter in January.
Calls and texts to Orios Ventures were left unanswered, while a senior partner at Chiratae ventures, which is also an investor in GoMechanic, declined to comment. GoMechanic and CarTrade did not respond to an email seeking comments until press time.
Financial irregularities at GoMechanic were discovered when SoftBank was weighing an investment of about $40 million at a valuation of $700 million late last year, FE reported in January. According to a Bloomberg report, EY’s research suggested that 60 of the more than 1,000 GoMechanic service centres may have violated accounting standards to overstate revenue and divert funds.
All of GoMechanic’s major investors like Sequoia Capital India, Tiger Global, Chiratae Ventures and others in January said they were kept in the dark about the startup fudging its financials, until founders confessed earlier this week. That was despite the Gurugram-based company regularly holding board meetings and giving monthly updates, leaving no scope for any suspicion. GoMechanic reported that its revenue had doubled from Rs 47.2 crore in FY21 to Rs 96.8 crore in FY22, while its losses jumped over 4X from Rs 27.4 crore in FY21 to Rs 114.3 crore in FY22. Those financials were signed off by auditors like PwC and KPMG. Founded in 2016, GoMechanic was run by Amit Bhasin, Kushal Karwa, Nitin Rana and Rishabh Karwa.