02/03/2015 3:35 PM IST | Updated 15/07/2016 8:25 AM IST

Uber's Competition Just Got Stronger In India As Ola Buys TaxiForSure For $200 million

In this Tuesday, March 25, 2014 photo, traditional black-and-yellow licensed cabs and private cabs stand at a parking lot at the airport in Mumbai, India. Taxi-hailing smartphone app Uber is making a big push into Asia with the company starting operations in 18 cities in Asia and the South Pacific including Seoul, Shanghai, Bangkok, Hong Kong and five Indian cities in the last year. (AP Photo/Rajanish Kakade)

App-based cab hailing service Ola has acquired rival TaxiForSure for $200 million. The news is on expected lines after reports in late January had said that Ola was close to a deal.

This is among the biggest acquisitions in the Indian start-up space after Flipkart shelled out $300 million for last year.

Mumbai-based Ola Cabs has been cofounded by Bhavish Aggarwal and fellow IIT-ian Ankit Bhati, and operates in multiple cities in India. TaxiForSure is founded by Raghunandan G and Aprameya Radhakrishna, both graduates of IIM-Ahmedabad.

"TaxiForSure built a very exciting business in a short time. There's a lot of complementary value in the strategy TaxiForSure has followed," said Bhavish Aggarwal in a chat with HuffPost. Arvind Singhal, currently the Chief Operating Officer for TaxiForSure, will become CEO of the combined entity.

The deal makes sense for both companies. Ola, which raised $210 million from Softbank, will now be in a better position to compete with Uber, the San Francisco-based online taxi-hailing app, which has grown rapidly in India. TaxiForSure hasn't been able to raise enough funds, with $30 million coming in the latest round from Accel and Qualcomm three months ago. Competing with Ola and Uber would have been tough.

"The combined entity will be strong enough and better capitalized to offer the best value to all our stakeholders, including our customers," said Raghunandan.

Uber, valued at $40 billion, has significantly higher resources, and India is its second largest market after the United States in terms of number of cities it operates in. Further expansion couldn't happen because its operations were halted by the government after a woman passenger was allegedly raped by one of its drivers in Delhi. The Delhi transport department framed new rules for Ola, TaxiForSure and Uber that requires them to get a radio cab license, the conditions for which are onerous, and impractical. However, the companies continue to operate in the city without a license.

Ola and TaxiForSure will continue to operate as separate entities. "They work with cab operators, and have a low entry point at Rs 49. We would like that brand and business model to continue," said Aggarwal. He also said that they will have a presence in over eighty Indian cities, compared with Uber's in eleven.

TaxiForSure stock will roll over into Ola's, and the combined entity will retain all 1,700 employees. "Our focus will be to expand aggressively this year. There is no need for more fund-raising at this point," said Aggarwal.