Zomato explores merger with rival Swiggy

MUMBAI/BENGALURU: Zomato has engaged in talks with its closest rival Swiggy for a possible merger, people close to the matter told TOI. The proposal from Zomato, however, may not end in a deal as both the players are unlikely to agree on the terms of the transaction, sources indicated. The Gurgaon-based restaurant discovery platform which also has a food delivery platform is presently closing a $200 million round from Ant Financial, an affiliate of Alibaba, which is independent of these discussions, giving it a leg up over its competitor in what has been one of the most intensely fought and bitter battles in the consumer internet sector.The latest financing round led by Alipay is likely to value Zomato at $1 billion, post the investment.
Swiggy on the other hand raised $80 million from South Africa's internet and media conglomerate Naspers earlier this year valuing it at $400 million.
If the merger did take place between the two largest players in the online food ordering industry, it would be among the most significant moves made towards consolidating a cash guzzling sector which has been through a tough last few years.
"Zomato had offered a 1:4 share swap ratio ( for every one share of Zomato four Swiggy shares would be considered) which isn’t likely to be agreed up on by Swiggy's shareholders. Swiggy is looking for a $500 million valuation ( up from its previous round) while Zomato wants to strike the deal valuing itself at more than $1 billion," a person close to the matter said. Sources also said that the Swiggy board was presently divided on the matter which would also jeopardise the deal.
An email sent to Deepinder Goyal, co- founder, Zomato did not elicit a response. “Swiggy has a razor-sharp focus in delivering a superior customer experience as we continue to grow as India’s largest food ordering and delivery company. We would not like to comment on baseless speculations such as this.” An Alipay spokesperson said, "We don't comment on market speculations."
While talks between the two players took place over the past few weeks, there's another leg to the deal making. Multiple sources said that Flipkart along with Tencent had also held discussions with Zomato and later turned to Swiggy for a possible investment. " There are several scenarios being drawn up as Alipay closes the funding round at Zomato. Flipkart and Tencent have shown interest in Swiggy after their talks did not lead to anything with Zomato," a person said on the condition of anonymity. China's Alibaba and Paytm have also engaged in talks with Swiggy, sources said.
Zomato claims to be clocking about 3 million orders a month while Swiggy is ahead with 4 million monthly orders. Swiggy has about 18,000 restaurants on its platform and Zomato has around 25,000 including the ones in the UAE.
Earlier in September, Zomato announced it will roll back the commission it charges restaurant owners and acquired logistics startup Runnr, intensifying its fight with Swiggy which manages its own deliveries.The Bengaluru-based Swiggy has been focusing on improving its unit economics while fighting Zomato. It has introduced multiple new charges including permanent fee of Rs 50 for delivery from certain restaurants, starting surge pricing in peak hours. Zomato too has been focusing on reducing its burn which stood at about Rs 78 crore for fiscal year 2017, down by 80%.. Zomato reported revenues of Rs 320 crore in fiscal year 2017 compared to Rs 185 crore a year ago. For Swiggy, revenue stood at 23.59 crore at the end of fiscal year 2016 while losses swelled to over Rs 137 crore at the end of fiscal year 2016.
(The story was updated with a response from a Swiggy spokesperson)