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    Car servicing startup GoMechanic acquired by Lifelong group led consortium in slump sale

    Synopsis

    The sale was led by GoMechanic's venture debt investor Stride Ventures. "This transaction will assist in preserving the ecosystem at large and also enable providing continued livelihood to the employees at Gomechanic," the statement said.

    GoMechanicETtech
    Automotive startup GoMechanic, which has been roiled by admissions of misappropriation by its founders, has managed to find a buyer as part of a slump sale.

    A consortium led by auto component maker Lifelong Group has acquired the company.

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    The sale was led by GoMechanic’s venture debt investor Stride Ventures.

    “This transaction will assist in preserving the ecosystem at large and also enable in providing continued livelihood to the employees at GoMechanic,” according to a statement.

    According to sources, GoMechanic had a debt of around $20 million (about Rs 150-160 crore).

    The startup’s equity investors had written off the debt following the admission of financial misreporting by the company, but Stride Ventures – GoMechanic’s venture debt investor – has been looking for a potential buyer over the last two months.

    Lifelong Group did not disclose the financial details of the deal.

    E-mails sent to the group did not elicit a response till press time Wednesday.

    top-shareholders-in-gomechanic_graphic_jan-2023_ettech.ETtech

    Attempts to reach Lifelong Group’s chairman Atul Raheja through calls and text messages were also unsuccessful.

    “Due to the recent financial difficulties at GoMechanic, the board and shareholders, with support from Stride Ventures, initiated a speedy and widely publicised sale process to ensure the continuity of business. The Servizzy consortium, to be led by the Lifelong Group, emerged as the strongest bid in this process for the acquisition of the GoMechanic Business, in accordance with the terms and conditions contained in the agreement,” Lifelong Group said in a statement.

    Lifelong Group is a component manufacturer that specialises in plastics and polymer manufacturing and serves clients from the automotive industry.

    After the transaction, Lifelong Group will become a majority shareholder of the business that will be held under Gurugram-based car-servicing startup Servizzy.

    Several other automotive startups and vehicle makers were approached in the run up to the sale.

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    A top executive at a company that was evaluating the purchase of GoMechanic said: “The company had a Rs 150-160 crore debt. It only made sense for us to consider if it came at a significant discount. We were offered the company for around $10 million (Rs 75-80 crore).”

    GoMechanic, founded in 2016, has raised funds from marquee investors Sequoia Capital, Tiger Global, Chiratae Ventures and Orios Venture Partners, among others.

    It has also raised debt funding from Stride Ventures.

    The company has raised about $62 million since inception.

    In June 2021, it raised $42 million in a Series C round from Tiger Global, Sequoia Capital India, and others.

    GoMechanic provides doorstep servicing of cars through its various service centres across India. The company also sells car spare parts and accessories, and provides cleaning services, among others.

    GoMechanic fired 70% of its workforce earlier this year.

    SoftBank and Malaysia’s sovereign wealth fund Khazanah had pulled out of a funding deal in the company after a series of lapses and financial mismanagement by the founder came to light, ET reported.

    Emails sent to GoMechanic investors Sequoia Capital, Orios Venture Partners, Chiratae Ventures and Strides Ventures also went unanswered.

    As of May last year, Sequoia Capital India held 26.9% stake in GoMechanic, while Orios Venture Partners had 17.1% share. Among the founders Kushal Karwa and Amit Bhasin held 11.1% each, while Rishabh Karwa and Nitin Rana held 1.6% each. Tiger Global and Chiratae Ventures owned 10% each in the company.

    Under scrutiny

    The sale comes at a time when GoMechanic has been under scrutiny from the government as well, with a case pending before the National Company Law Tribunal (NCLT).

    Last month, ET reported that the Registrar of Companies (RoC) had sought to examine the books of GoMechanic’s holding entity Targetone Innovations Pvt Ltd amid allegations of irregularities and corporate governance issues at the startup.

    gomechanic-financials.ETtech

    Prior to that, the NCLT had issued a notice to the startup over an insolvency plea filed against it by an operational creditor, Digirovers Solutions Pvt Ltd. The next hearing in the case has been scheduled for April.

    In January, GoMechanic founder Amit Bhasin admitted to financial reporting errors at the startup and said that the cash-strapped company would lay off roughly 70% of its workforce while also having its accounts audited by a third party. The audit was conducted by EY.

    “Our passion to survive the intrinsic challenges of this sector and manage capital, took the better of us and we made grave errors in judgment as we followed growth at all costs, particularly in regard to financial reporting, which we deeply regret," Bhasin said in a LinkedIn post.

    The Morsebiz spare parts play

    ET also reported in February that three to four months before Bhasin confessed that the company’s growth was riddled with financial lapses, GoMechanic was planning to spin off its spare parts business and raise capital.

    At the heart of this plan was a six-month-old startup called Morsebiz, founded by GoMechanic founder Kushal Karwa’s wife, Salonee Chitlangia, and her brother, Raunak Chitlangia, with Karwa and the other GoMechanic cofounders Rishabh Karwa and Nitin Rana acting as strategic advisers.

    Morsebiz was also pitching to GoMechanic’s investors, including Sequoia Capital, Orios Venture Partners and Chiratae Ventures. The eventual plan was to hive off GoMechanic's spare parts business, merge it with Morsebiz and have GoMechanic hold around 30% in Morsebiz.
    ( Originally published on Mar 29, 2023 )
    The Economic Times

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