The board of the food delivery app has approved the acquisition of quick commerce startup Blinkit (formerly Grofers4,447 crore (about $570 million) in an all-stock deal.

The value of the transaction is 40% lower than Blinkit’s previous valuation of just over $1 billion. As discussed earlier, the deal was pegged at $700-750 million.

Blinkit became a unicorn — or a privately held company with a valuation of $1 billion or more — last year following a $120 million funding round from Zomato and New York-based investment firm Tiger Global.

Altogether, blinkit So far it has raised $692 million from investors including Japan’s SoftBank, DST Global and Tiger Global, according to data from industry tracker Traxon. Zomato currently holds around 9% stake in Blinkit.

According to the deal, Blinkit shareholders will get about 7% in Zomato at 70.76 per share.

The transaction is expected to close in early August, Zomato informed BSE after the board meeting on Friday.

This is subject to customary shareholder and stock exchange approval, Chief Financial Officer Akshat Goyal said in a letter to shareholders. “The next big category (accelerated commerce) is timely as our existing food business continues to grow towards profitability,” Zomato founder and CEO Deepinder Goyal said in a note to shareholders on Friday.

He said, “Zomato has grown at a CAGR of 86% over the last 4 years to reach Adjusted Revenue of $710 Million, while the Adjusted Ebitda Margin increased from 153% in FY19 (153%) to FY22 (18%) Is.”

Zomato defines Adjusted Ebitda as Ebitda less share-based payment expense.

Goyal has previously said that the restaurant aggregator platform was “very conscious” about not overpaying for Blinkit in the event of a deal.

“We are very conscious that we do not have to overpay for any M&A (mergers and acquisitions), and we have strong governance processes. We will follow the process and make no mistake on that front,” he said in a statement. investor said during the call. When asked from May how Zomato will value Blinkit.

Investors of Blinkit will have to compulsorily hold Zomato shares for 12 months.

Furthermore, 50% of the shares will be locked-in for 24 months, while the rest will have a lock-in period of 12 months, due to Blinkit founder Albinder Dhindsa.

Blinkit co-founder Saurabh Kumar left the firm last year to start a new venture, but remains a shareholder in the company.

It is not clear whether the lock-in period of 24 months will also apply to his stake in Zomato.

Shares will be locked for a mandatory six months due to the use of Blinkit or the vested employee stock ownership plan (ESOP).

SoftBank and DST Global are also investors in Zomato’s rival Swiggy.

ET first reported That the two companies first explored a deal more than two years ago.

blinkit number

According to the shareholder letter, Blinkit had revenue of Rs 22.1 crore in January, its first month of operating as a fully accelerated commerce business. This has increased to Rs 58 crore by May.

In the same month, it saw a Gross Order Value (GOV) of Rs 402.8 crore as compared to Rs 295.5 crore in January.

Blinkit’s revenue includes its marketplace commission income, customer delivery fees, advertising revenue, warehousing and ancillary services income.

It is present in the top 15 cities.

Zomato CFO Akshat Goyal said Accelerated Commerce increases its addressable market, potential profit pool and makes its business more defensible.

“Peak demand times for food delivery also complement accelerated commerce demand peaks in non-meal times. This will help increase the utilization of our hyperlocal delivery fleet and reduce the cost of delivery,” he said, adding that the company is looking at food delivery. Has globally distribution and quick commerce convergence.

Chief Executive Deepinder Goyal said that Instant Commerce will help increase the customer wallet share spent on Zomato and also lead to higher frequency and engagement with customers.

The company said that Blinkit GOV already accounts for about 63% of Zomato’s food delivery GOV in Gurugram.

Average order value on Blinkit is higher than on Zomato.

competition

The Blinkit purchase is expected to help Zomato – which has been bullish on quick commerce – significantly consolidate its position in the buzzy, ultra-fast grocery delivery space. Rival Swiggy has allocated at least $700 million for its instant commerce business under Instamart, while the sector has also seen other well-funded startups such as Zepto, retail-backed Dunzo and Tata-owned BigBasket.

However, the sector is yet to show any signs of turning profitable.

On the current competition scenario, Deepinder Goyal said, “Yes, the competition is high, but the market is also huge. The penetration of online commerce in India today is so low that high competition is really healthy.”

“Different companies will innovate differently to drive growth. This will lead to rapid category creation, like how it happened in food delivery a few years back. This will benefit players (like us) who are good at achieving scale. Well positioned.”

Zepto raised $200 million in May in a funding round led by existing investor Y Combinator’s Continuity Fund.

Zomato is trying to enter the quick commerce space and had twice dropped the plan to deliver groceries online in 2020 since the start of the Covid-19 pandemic.

Akshay Goyal said during an investor call in May, “What has changed in terms of fast delivery is product-market fit, and customer proposition much stronger than kirana (brick-and-mortar kirana shops). It is done.”

He said in the shareholder letter that Zomato was acquiring a portion of the debt owed to Blinkit as part of the transaction. Zomato had given a loan of Rs 1,125 crore to Blinkit, of which Rs 575 crore was still available as cash.

“This means we have an additional Rs 1,875 crore as planned for further potential investments in accelerated commerce going forward,” he said, adding that the majority of this capital would be financed in Blinkit during the remainder of the current calendar year. will lead to losses. Also next year.