After exploring deal with Swiggy, SoftBank may cut large cheque to Zomato

Lloyd Doyle
Мая 17, 2018

SoftBank's move, which comes after its talks with Bengaluru-based Swiggy to explore possibilities of funding to the tune of United States dollars 200-250 million in the company, is an indication of its target to play the role of kingmaker in the food delivery market.

One of the close sources claimed that SoftBank's top official held a meeting with counterparts from Zomato earlier this week.

With infuse of fresh capital of about $800 Mn to $1 Bn in food delivery segment startups including all four - Zomato, Siggy, UberEat and Ola's Foodpanda - consumers in India can expect increased discounts and promotions, thanks to cut-throat competition ignited by upcoming funding spree into this segment. "One of the points of conversations revolved around Zomato's worldwide expansion over next few years", an unnamed source familiar with the development was quoted as saying by The Economic Times.

In the case of Zomato, while talks are still in preliminary stages, SoftBank reportedly discussed business metrics across Zomato's three main businesses and more specifically around Zomato's worldwide expansion. The major players who have been in the industry are Zomato and Swiggy. While Uber is expected to invest $200 million into its food delivery business, UberEats, here in India, both Zomato and Swiggy are in talks to shore up $200 million each from risk investors.

While the euphoria among investors has returned seeing the high growth of these companies, the burn rate on the back of spiralling customer acquisition costs hasn't come down for anyone in the sector.

The reason for all this interest is obvious since the food delivery business in India is on the roll.

According to estimates from RedSeer Consulting, India as a market holds tremendous potential for food-tech, the sector recorded a 125% increase in order volumes to 4.5 lakh orders per day from about 2 lakh orders per day in 2016.

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This was well reflected earlier this year as Swiggy raised almost $100 from Naspers and Zomato received $200 million funding cushion from Alibaba. Coatue Management declined to comment. Both companies have or had their own food delivery services.

SoftBank's investment in Paytm Mall, which took place in April this year, has been called as the largest investment of the month.

Ant Financial Services Group, Alibaba's payment affiliate, on 1 March, also bought $50 million worth of Zomato shares in secondary purchases as part of the aforementioned transaction. It most recently acquired Chinese food delivery player in a mostlycash deal valuing the firm at a whopping $9.5 b, as per global media reports.

While valuation differences and business alignment have made the merger conversations rather turbulent, people aware of the developments maintain a possible merger has not been completely ruled out yet. Over the past couple of years, the food-tech space in India is on a rise.

Softbank is said to be in talks to take a stake in Zomato.

Investors also point to the early frenzy in the e-commerce market where a capital rush followed companies like Flipkart even as they burnt significant cash on every single order.

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