As part of the deal, Zomato will issue 62.9 million shares on a fully diluted basis at an allocation price of an equity stake amounting to 6.88%. 70.76 per share, Zomato said in a regulatory filing. Shares of Zomato closed 70.35 on the BSE on Friday, up 1.15 per cent before the acquisition was announced.
Zomato has acquired Blinkit’s warehousing and ancillary services business HOTPL for $8 million. However, it will not acquire the B2B trading business as it no longer fits strategically into its plans, it said.
Japan’s SoftBank, the largest shareholder in Blinkit with a 46% stake, will acquire around 3.2% stake in Zomato as part of the transaction, according to estimates by VCCircle. Tiger Global Management will get around 1.3% stake and Sequoia Capital, which is already an investor in Zomato, will get an additional 0.5%.
Other investors in Blinkit (formerly Grofers) who stand to acquire new shares in Zomato include Korea’s KTB Ventures, Yuri Milner’s Apollet Asia and Bennett Coleman & Co Ltd.
Grofers International Pte, the promoter arm of Grofers founders, will get 759 million shares or more than 0.8% stake in Zomato. The Blinkit deal underscores the ultra-competitive and cash-guzzling nature of the Quick Commerce business. The Blinkit was one of more than 40 unicorns created in India last year. A unicorn is a startup that is worth $1 billion or more.
The new shares to be issued by Zomato are subject to lock-in. “While the statutory lock-in requirement is six months, we have negotiated a 12-month lock-in to sell to Blinkit shareholders,” Zomato said.
Also, half of the shares will be locked for two years and the rest for one year due to Blinkit founder Albinder Dhindsa. The shares will be closed for a mandatory six-month period due to the exercise of Blinkit/Vested Employee Stock Options.
Zomato founder and CEO Deepinder Goyal said in a blog post that Quick Commerce has been a strategic priority for the company since last year, when it first invested in Blinkit. “We have seen this industry grow rapidly in India and globally, as customers have found great value in quick delivery of groceries and other essentials. This business is also synergistic with our core food business, which empowers Zomato to win over the long term.”
Dhindsa will continue to lead the Accelerated Commerce business. The deal is expected to be completed by August.
The deal will bring relief to Blinkit as competition in accelerated commerce intensifies. Blinkit reportedly laid off employees, closed dark stores and delayed some vendor payments earlier this year.
Zomato said that Blinkit’s losses between January and May have sharply reduced due to operating leverage and better execution.
Blinkit also closed several unviable stores that weren’t scalping and this also helped reduce losses. Its dark store count fell to nearly 400 in May, from more than 450 in January. “The team will continue to evaluate non-performing stores and learn what doesn’t work,” it said.
The adjusted Ebitda (earnings before interest, taxes, depreciation and amortization) of the business is expected to become break-even in less than three years. In addition, Blinkit’s revenue per order increased due to increased commissions and customer delivery fees.
According to Zomato, Blinkit posted a revenue of 236.32 crore in FY 2012, up from 200 crore in FY21 and 165 crore in FY20.
In a February 2022 letter to its shareholders, Zomato had shared an upper limit of $400 million investment in Accelerated Commerce in 2022 and 2022. “We still maintain it,” it added.
“The majority of this capital will go toward funding losses in Blinkit during the remainder of CY22 and CY23,” it said.
Blinkit became a unicorn in August 2021 after raising $120 million from Zomato and Tiger Global. Zomato’s funding in Blinkit last year also meant that Zomato would bring groceries back on the platform, after shutting it down a year ago.