GoMechanic Acquired By Lifelong Group-Led Consortium; Equity Investors See No Returns

Two months after Sequoia-backed GoMechanic publicly admitted to financial misreporting, the after-sales service startup has found a buyer in a consortium led by Lifelong Group, which is a majority shareholder in GoMechanic rival Servizzy.

However, two sources close to the development told us the deal saw write-offs by all GoMechanic equity investors, while the venture debt investors in the company managed to recover some funds. While the Lifelong Group did not reveal the size of the transaction, sources told Inc42 that the deal is to the tune of INR 220 Cr (roughly $27.5 Mn).

Founded in 2016, the company has raised roughly $55 Mn (or over INR 440 Cr) in funding from influential investors such as Tiger Global, Sequoia Capital India, Orios Venture Partners, and Chiratae Ventures.

No Returns For Equity Investors

Sources told Inc42 that the deal did not result in any returns for these investors, while Stride Ventures and other debt investors managed to recover an amount to the tune of INR 220 Cr. Stride Ventures is said to have led the negotiations and discussions around the sale of the company.

According to reports, Stride Ventures recovered INR 100 Cr through the deal, but Inc42 could not independently verify this information. The venture debt investor could not be reached for a comment.

Sequoia, Orios and Chiratae Ventures did not comment on the development.

But sources added that deal does not involve the GoMechanic founders, Amit Bhasin, Kushal Karwa, Nitin Rana and Rishabh Karwa. The founders not be part of the new company and will not hold equity in Servizzy post the deal. While there will be some transfer of talent and some assets from GoMechanic to Servizzy, it’s not clear when the deal will be finalised.

Will Forensic Audit Have A Say?

While the Servizzy consortium, to be led by the Lifelong Group, emerged as the strongest bid in this process, it’s not yet clear whether this deal will indeed go through as claimed.

That’s because the results of the forensic audit could further complicate the situation and result in potential legal ramifications for the new owners and as such that audit report will be critical in determining the final state of GoMechanic.

“The final forensic audit report which will be tabled soon will show us the true picture of the company and that could change the terms of the deal as well,” one of the sources added.

The nature of the financial misreporting is also not clear as of now, but the company had racked up major losses in the past two years.

GoMechanic reported revenue from operations of INR 34.1 Cr in FY21, which grew 2.6X to INR 90.5 Cr in FY22 (March 2022). Its expenses grew faster in the fiscal, surging from INR 74 Cr to INR 210 Cr. As a result, the losses ballooned to INR 114 Cr ($15 Mn as per 2022 rates) from INR 74 Cr ($10 Mn as per 2021 rates) a year ago.

The higher losses are down to a major increase in costs for purchase of stock in trade with INR 37.6 Cr spent on this line item in FY22, 3X higher than FY21. Employee costs doubled from INR 30 Cr to INR 61.7 Cr in the fiscal.

The biggest expenditure is bracketed under ‘other expenses’ at INR 108 Cr, again 3X higher than FY21. This opaque expense item has not been further explained in the company’s regulatory filings.

It must be noted that the company’s filings for FY22 show a higher loss for FY21 than its earlier financial filings for FY21.

GoMechanic Grounded By Fraud

“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 Lifelong Group said in a statement.

Lifelong Group, incorporated in 1985, is a renowned manufacturer of automotive components, medical devices, and a player in the ecommerce space. “Acquisition of the GoMechanic business, aligns with our strategic vision of synergising the Lifelong Group’s proven expertise in the automotive industry. We are focused on building upon GoMechanic’s business journey, and will continue revolutionising the Indian automotive service and repair industry,” the Lifelong Group added.

Besides offering repair services by standardising local garages, GoMechanic also launched an original spare parts business and expanded into warranty as well. The startup came into the spotlight for all the wrong reasons earlier this year after it reported false numbers to its shareholders despite being audited by big names such as KPMG and PwC.

Cofounder Bhasin publicly admitted to the misreporting of numbers, which led to investors calling for a forensic audit into the company.

Following the public admission of fault, GoMechanic’s second largest institutional shareholder, Orios Venture Partners, wrote down its investment in the car servicing startup. Another investor, Sequoia, also launched a forensic audit against the startup.

The company reportedly held talks with multiple companies, including CarTrade, Cars24 and Spinny, for a buyout. Lifelong was among eight bidders who were said to have presented the offers to Stride Ventures and other investors.

Update Note; March 29, 2023 | 10 PM

• Added information about the deal and returns for investors