Frontier Car Group is a Berlin-based startup that builds used car marketplace and targets emerging and high-growth markets. Now, the company has started funding, from a backer which aims the same opportunity.
Today, OLX, the online classifieds division Prosus, announced that it would fund Frontier $400 million. The funding would be a mix of existing business shares, equity, and secondary share acquisitions. The deal will comprise of primary capital. However, OLX has confirmed that the deal will make the total valuation of Frontier Car Group to $700 million.
Regarding the business shares, OLX mentioned that it would contribute its shares in a joint venture with Frontier in Poland and India. However, investors, management and founders are currently holding the secondary shares. Frontier now operates in many markets, like Mexico, Chile, Pakistan, Indonesia, Nigeria, and the USA. Frontier also bought WeBuyAnyCar last year.
Even before OLX gives the full $400 million, an OLX spokesperson said that the first capital would make it Frontier’s largest single shareholder, which values the overall deal at $350 million.
Now let us take a brief look at the services which Frontier Car Group provides. Firstly, there are basic inventory listings. Moreover, the startup provides pricing guides, reports, financial, insurance, and warranties. The company plans to expand to more services for one key player in used car space. The company will also introduce resale services through OLX and more book-style pricing guides and several other products.
Frontier sold around $700 million worth of cars in the previous year. Moreover, in May last year, the company raised around $58 million. It has sold 50,000 vehicles to date. The CEO of the company, Sujay Tyle, says that the company is growing at a rapid pace.
Tyle said in a statement, “FCG has tripled its performance across all frontiers since OLX invested in the company 18 months ago.
Moreover, at that time, the company has expanded to four new countries. All this has happened due to FCG’s capable team and the integration with OLX in key markets. We are working with OLX and Prosus to revolutionize the used car market in developing economies. We will ensure that each partner works with trust and transparency.”
The CEO of OLX Group, Martin Scheepbouwer, stated, “We are working with Frontier Car Group to form a global used car marketplace. We will offer a satisfactory service to millions of car sellers, buyers and dealers. We want to expand the platform globally. Our experience in India has been great, and we have increased the number of stores threefold. Moreover, the car purchase volume is increasing by 10% each month.”
You might be surprised to know that this isn’t the first time that OLX has invested in Frontier. In May 2018, Naspers invested $89 million in Frontier. This investment came a few weeks after Frontier raised $58 million from different backers, like TPG, Balderton, and others. Moreover, this deal is the long term trend of consolidation in e-commerce businesses. For example, Prosus recently made a $6.3 billion bid to acquire JustEat. However, JustEat rejected the deal and merged with TakeAway.com, another food delivery company.
The basics of economy-of-sale principles are something like this. Economies of scale make a platform beneficial. However, it means that Frontier would make more transactions, which means more overall revenues. Moreover, having more sales improve the overall margins of investment.
Targeting peer to peer used car sales has the potential of turning into a big business. OLX says that their businesses with Frontier Group, combined with OLX’s own business in Asia, Poland, and Latin America, will lead to a market where 30 million cars are sold each year. This is double the cars China sells annually. Thus, OLX needs this partnership way more than FCG.
