Ola’s Avail Finance acquisition may have to go through an independent audit

Ride hailing giant Ola’s announcement that it is acquiring neo-banking start-up Avail Finance may necessitate an independent audit and a subsequent board approval, under the corporate governance regulations, experts say. Ola announced on Thursday that it has reached an agreement to acquire Avail Finance for an undisclosed valuation, however, the deal will be subjected to shareholders' approval. Avail Finance was last valued at $38.5 million according to Traxcn.
 
Sources tracking Avail Finance have told Business Today that the company had gone on a downsizing exercise recently, having fired its non-core operations team and is currently operating with a small sized teach team led by Ankush Aggarwal, who is the CEO at Avail, and is also Ola CEO, Bhavish Aggarwal’s brother.
 
The Bengaluru-based banking start-up was co-founded by Ankush in 2017 to provide instant loans to blue-collar workers. Both the brothers are the directors in the company.  Even as Ola has a 9 per cent stake in Avail Finance and there are some common investors, including Alpha Wave Global and Matrix Partners in both the firms, the share-swap deal may need a board approval and an audit since it falls under related party transactions.
 
“A company may, as part of its business, enter into transactions with parties with whom they are related or have common interests. Although such transactions may be legal, they, at times, create conflicts of interest and/or can impact the financial position of the company,” argued Yashojit Mitra, Partner, Economic Laws Practice.
 
Mitra added that in order to protect the interest of stakeholders and maintain transparency in business, such kind of transactions with related parties are regulated.
 
“From a corporate governance perspective, there are certain checks and balances that have been put in place, for example: in order to ensure that a related party transaction is undertaken on an ‘arm's length basis’, the audit committee will typically independently assess the said transaction and provide its recommendation to the board, which can then also decide to approve or reject the transaction. The interested directors are typically not allowed to vote on such transactions, so as to avoid conflict of interest.  When the stakes are high, shareholders (i.e. majority of disinterested shareholders) approval may also be required for approval of related party transactions,” Mitra noted.
 
Meanwhile, a detailed questionnaire has been sent to Ola and Avail Finance on the contours of the deal and whether an independent audit will be carried. Their responses are awaited and the story will be updated subsequently. BT has also reached out to Ankush Aggarwal for his response. The story will be updated as and when the responses are received.
 
Ola, however, did say in an official statement earlier that the acquisition is a key step in the company’s push into the fintech space as it looks to build a mobility-focused financial services business under Ola Financial.
 
Ola recently invested nearly Rs 800 crores into its financial services business that already is showing strong growth across both its lending and insurance verticals. Ola Postpaid, its BNPL offering is available to 40M customers, its vehicle financing business is growing rapidly in conjunction with Ola Electric as well as Ola Cars, its used cars business. With Insurance, Ola has built a first-of-its-kind embedded motor insurance journey for Ola Electric and Ola Cars, where customers can seamlessly select Insurance; and add ons like roadside assistance or zero depreciation within the buying journey, as per a company statement.