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Business deals

SoftBank and Oyo in $100m plus deal for Japan apartment operator

Joint venture with Indian startup shows Son still hungry despite WeWork fiasco

Oyo CEO Ritesh Agarwal speaks during SoftBank World 2019 on July 18 in Tokyo. (Photo by Shihoko Nakaoka)

TOKYO -- SoftBank Group and Indian hotel startup Oyo have jointly acquired an 80% stake in Japanese rental apartment operator MDI.

The acquisition cost over $100 million, according to a person familiar with the deal. Oyo confirmed the transaction but declined to comment on either the price or its stake in the joint venture set up to acquire MDI. SoftBank and MDI also declined to comment.

MDI reported revenue of 114 billion yen ($1 billion) in the fiscal year ended March.

The deal signals that SoftBank CEO Masayoshi Son's appetite for new investments has not flagged despite the disaster at WeWork, which on Monday withdrew its initial public offering in the face of investor indifference. SoftBank's near $100 billion Vision Fund is a major shareholder in Oyo, and SoftBank affiliates already have joint ventures with Oyo in Japan.

"Real estate is a capital intensive business. The involvement of SoftBank is a strong endorsement for Oyo in Japan," said one person close to the deal.

In an email, an Oyo spokesperson said it aims to "leverage MDI's strong network and business development capabilities in Japan's real estate market."

After the acquisition, Oyo plans to list some of the 37,000 rooms under MDI management on its Oyo Life room rental platform, adding to its existing inventory of more than 2,000 rooms in Japan.

Oyo Life, launched in March as a joint venture with SoftBank affiliate Yahoo Japan, takes out long-term leases on apartments, refurbishes the units, then offers short-term rentals to users willing to pay a premium for convenience.

The acquisition comes despite controversy surrounding MDI founder Yusuke Miyama. Leopalace21, another apartment rental company founded by Miyama, admitted in 2018 to shoddy construction in some of its buildings, triggering a backlash that sent its shares plunging. MDI recently announced that possible defects were found in 18 of 89 buildings it inspected, and that it is checking 379 more buildings. 

MDI said it currently has no ties to Miyama, as the founder stepped down as chairman in late March and holds no shares in the company, which a source said was a "prerequisite" for the SoftBank-Oyo deal. His post was filled by Masafumi Miyama, one of his relatives.

Oyo was founded in 2013 as Oravel Stays by then-19-year-old Ritesh Agarwal. His ambition and strategy of using artificial intelligence to streamline hotel management attracted Son, whose Vision Fund led a $1 billion financing round for Oyo in 2018. In July, backed by institutional banks and financial partners, Agarwal bought new and existing shares in the company worth $2 billion.

Oyo has used the cash to fund acquisitions to boost growth and diversify into other sectors of the property market. It bought Amsterdam-based Leisure Group for an estimated 369.5 million euros ($402 million) in May, and in August spent $135 million with its American partner Highgate to buy the Hooters Casino Hotel in Las Vegas.

Since then, Oyo has evolved into a sprawling network of hotels and vacation homes across 80 countries.

An Oyo spokesperson said the company "has a strong balance sheet." In a March interview, Agarwal said the company is still losing money, but the rate of losses as a percentage of revenue is narrowing.

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