Gurgaon-based digital payments provider PayU India, which is owned by South Africa's Naspers Group, said on Wednesday it will buy Mumbai-based payment startup Citrus Pay (Rs 865 crore) for $130 million, the fifth-largest deal ever in the Indian start-up business.

The acquisition is expected to close by the end of the year and is also expected to yield handsome cash returns to venture capital investors who backed the 5-year-old company, a rare instance in the Indian startup landscape. Sequoia Capital, the earliest backer of Citrus Pay, which had invested about $10 million and owned a 32% stake in the venture, is expected to earn a four-fold return on its investment, while Ascent Capital, which bought a 8% stake last year, has earned about $12 million, according to sources.

After the acquisition, PayU India will have more than 30 million customers. The company forecast that it will process an estimated 150 million transactions worth $4.2 billion in 2016.

"Today’s announcement is a significant milestone for both businesses, as well as the FinTech industry in India,” PayU’s global operations CEO Laurent le Moal said in a statement. "It is exciting for everyone across the PayU and Citrus teams as we bring together new capabilities that will help us to better serve our collective clients."

The deal places CitrusPay CEO Amrish Rau at the head of PayU’s India operation, which apparently means that the two companies will be completely merged and CitrusPay’s brand will cease to exist. The deal could also see PayU co-founder Nitin Gupta leave the company to launch a new startup probably.

CitrusPay and PayU have very similar business models and both were established in 2011. PayU maintains operations around the world. Its India branch offers net banking, credit and debit options and allows users to attach their digital wallets to their regular checking accounts for the purpose of making purchases online. The company received a “semi-closed wallet license” from the Reserve Bank of India in August. The Boston Consulting Group said in July they expected the Indian digital payments market to reach $500 billion by 2020.

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