Zomato Can Acquire Grofers For Rs 5700 Crore; Softbank Will Also Back This Mega Acquistion

The online food delivery orders for Zomato and Swiggy dropped in the wake of a nation-wide lockdown to curb Covid-19 virus outbreak as the customers stepped back and top restaurants shut business. Last month, as per reports, Zomato was planning on partnering up with Grofers and BigBasket, online grocery retailing startups.

In what appears to be a huge consolidation move, Zomato is in talks to acquire Grofers in an all-stock deal, said two people close to the matter.

Read to know more about the deal…

Zomato’s Partnership with Grofers Can Now Turn Into Its Acquisition of Grofers?

Grofers has seen a rising demand in the past few weeks following the Covid-19 Pandemic . The company is expected to be valued at around $750 million, the people said. According to the sources familiar with the matter, Japanese conglomerate SoftBank Vision Fund, the largest shareholder in Grofers, may look to invest around $100-200 million in the merged entity.

The Ant Financial-backed Zomato is currently valued at around $3.2 billion while Grofers was valued at around $650 million as per its last round of financing led by SoftBank Vision Fund in December 2019. Sequoia Capital, is a common early investor in the two companies.

As per reports from ET, the discussion between the two companies comes after their recent partnership, Zomato and Grofers struck for grocery delivery. This partnership  involved Zomato Market, its newly launched grocery offering, fulfilling customer orders from offline stores that have an existing tie-up with Grofers.

In February, 2020, Zomato acquired Uber’s Uber Eats, a food delivery unit of Uber. SoftBank is also an investor in Uber. If the deal is sealed, it will be the second big buyout made by Zomato following the buyout of UberEats.

As per sources, “They have been engaged in talks over the past few weeks sensing a big opportunity in the grocery segment. Their pilot run across Delhi NCR seems to have clocked high order numbers to start with further strengthening the ongoing negotiations..”

Zomato Plans on Dominating Grocery Delivery Market?

Zomato wants to leverage its last-mile expertise in delivery while taking advantage of a wide range of private labels that Grofers manufactures. While the margins in the grocery business are low, an added capital infusion from SoftBank will arm both the companies to fight BigBasket backed by Alibaba, Swiggy as well as  Amazon and Flipkart in the future. Zomato’s largest investor, Ant Financial, an affiliate of Alibaba.

As per sources, Zomato also held talks with BigBasket for a potential merger, but the talks were preliminary, said sources. A person familiar with the matter while maintaining anonymity said, ” Alibaba which is an investor in BigBasket was keen to merge it with Grofers and Zomato..however it was not an easy deal to pull off…”

The Indian e-grocery market has witnessed a bunch of these merger discussions before as well but no deal has come through so far. In 2017, BigBasket and Grofers had explored a potential merger while Amazon had held talks to acquire BigBasket but the discussions did not bear any fruit.

What does Zomato Have to Say?

A Zomato Spokesperson said, “We have partnered with Grofers, along with FMCG companies, local grocery stores, and modern retail chains, to pilot our grocery delivery service. We are not aware of any other conversation with Grofers.”

A SoftBank spokesperson denied to comment on the speculation.

Deepinder Goyal, Founder & CEO, Zomato had told ET last week, “Grocery delivery has always been on our long-term radar since it fits into our vision of better food for more people.”

An investor directly aware of the deal said, “Food delivery and grocery are the two highest repeat cases for urban consumers. Over the last few months, before the coronavirus crisis, food delivery volumes had started to plateau. Expansion to adjacent businesses is the only way to grow.”

Currently the essential services industry is in boom, is Zomato making bold yet a clever move? Or will the acquisition be just another hasty decision to stay in the business?