Zomato is a highly recognized and popular Indian restaurant aggregator, as well as a food delivery service, founded in the year 2008 by the entrepreneurial duo Deepinder Goyal and Pankaj Chaddah. In the years that have passed, Zomato has not only expanded its geographic boundaries within India but has successfully entered international marketplaces, currently operating from a remarkably total of 23 countries around the world. Even though it started its journey as a small startup, over time Zomato has grown and developed to an impressive degree, having raised an astonishing $2.5 billion in funding through various investment rounds.
In addition, the company has bought a string of companies. Some of its recent acquisitions are UberEats acquired in January 2020 and Blinkit, quick-commerce grocery delivery service, in August 2022. Blinkit, which was initially founded with the brand name Grofers, was founded back in 2013 due to the efforts of the co-founders Albinder Dhindsa and Saurabh Kumar. The company quickly gained fame when it emerged into various cities in India with rapid grocery delivery services that gained immense popularity, allowing it to expand its business wings in several cities. By the year 2021, Blinkit marked a significant milestone after it attained unicorn status after raising an impressive amount of $120 million from well-known investors such as Zomato and Tiger Global. Despite this, Blinkit faced operational problems in meeting up with the business models and eventually ended up in troubles leading up to how its acquisition was valued at an enormous Rs. 4,447 crores whereby it was purchased by Zomato. Zomato and Blinkit have formed a deal which not only defines the growth strategy of Zomato but also the very problems of M&A in India. The following paragraphs detail the process of acquiring a company in India and the reasons for Zomato’s purchase of Blinkit.
Role of the Securities and Exchange Board of India/person
SEBI has a crucial role to play with regard to shares in cases of mergers and acquisitions. In cases of a transaction, the registered merchant banker needs to value the shares. Such valuation leads to the transparency and fairness required in situations where shareholders in one company receive shares after the exchange of their existing shares.
During share swaps, governance issues may emerge if new shareholders are granted identical terms as their existing counterparts, resulting in potential conflicts. In these circumstances, it is essential to meticulously consider the rights of all shareholders in order to prevent disputes.
Why Zomato bought Blinkit?
The acquisition of Blinkit by Zomato was motivated by several strategic considerations. Presented below are the primary motivations underpinning the agreement-
Quick Commerce Market Entry: Zomato was looking to foray into the space of quick commerce, dealing with groceries and essential delivery. The Indian quick commerce space has been rapidly growing and is majorly dominated by players like Amazon Pantry, BigBasket, and Swiggy. Zomato had made a previous attempt in entering the market but was not successful. By taking over Blinkit, it had gained some foothold in the highly competitive marketplace.
Increasing Customer Wallet Share: With Blinkit’s integration into Zomato’s platform, customers could now order groceries and food through the same app. This would increase Zomato’s customer engagement, as users could place multiple types of orders, thus capturing a larger share of their spending (wallet share). Reducing Delivery Costs: Zomato planned to reduce delivery costs by sharing the same delivery fleet between its food delivery business and Blinkit’s grocery service. Since Blinkit operates with a faster, time-bound delivery system, this could improve efficiency and reduce overall costs. The purchase would then augment the Gross Order Value (GOV) of Zomato, which is used in measuring the aggregate value derived from customers’ orders placed on its platform. This acquisition would expand the benefits for Zomato from a higher number of customers using Blinkit’s services to a higher volume of transactions conducted, especially within the high-margin consumer packaged goods (CPG) segment.
Why Blinkit Agreed to Be Acquired?
Blinkit, notwithstanding its swift expansion, encountered a number of operational difficulties that contributed to its financial hardships:
Dark Stores: The dark store business model of Blinkit relied much upon “dark stores,” small warehouse structures located near customers for rapid delivery. Due to a cash shortage, it could not pay its vendors on time and thus closed down around 50 dark stores. With fewer dark stores functioning, the company was unable to sustain its promise of delivering quickly and ended up hurting its reputation.
Delivery Workforce Issues: Quick commerce operates on a robust delivery force. Blinkit, however, couldn’t afford the number of delivery personnel it required due to its poor financial health. This led to several job cuts and significantly impacted the service delivery capabilities of Blinkit.
Inefficient Delivery Management: The limited number of dark stores and delivery personnel adversely affected Blinkit’s delivery management system, resulting in operational difficulties. Consequently, this undermined its capacity to provide the prompt deliveries that were fundamental to its business model.
Faced with these challenges, Blinkit needed a larger partner like Zomato to stay afloat.
The All-Stock Transaction The acquisition of Blinkit by Zomato was an all-stock deal, where the shareholders of Blinkit were granted shares of Zomato in lieu of their shares. According to Indian law, the transaction was cleared by NCLT and more than 75% of the shareholders of Blinkit agreed to the mergers. The shareholders in an agreement of this kind are exempt from capital gains tax as provided by Indian tax legislation. Since no cash transaction is involved in this swap, the shareholders are only swapping shares belonging to one company for shares of a different one.
Conclusion
The acquisition of Blinkit is yet another milestone in its expansion strategy. As an entry into the quick commerce sector, Zomato plans to diversify its offerings and expand its market share at large. Concurrently, with the aid of finance and infrastructure from Zomato, Blinkit can solve its operational issues going forward. The legal framework designed in India governs acquisition, and is structured for the protection of interests for both shareholders as well as creditors and other stakeholders. SEBI is there to support this cause. Mergers and acquisitions take place with utter transparency and fairness between the companies and their shareholders through this process. The prospects for quick commerce in India look optimistic, and Zomato with its strategic entry into this sector is nicely positioned to secure a larger share in the escalating market for e-commerce.
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