Foodtech combo - Is Swiggy gearing up for a merger with Zomato?

After acquiring Runnr earlier this year, foodtech startup Zomato is now eyeing rival Swiggy to establish pole position in the food delivery market. As per a recent report by ET, the two giants of the Indian foodtech space are in talks for a prospective merger.

However, as per the same report, the talks that were held sometime last week could not bear any fruit due to the disagreement regarding valuation and the terms of the deal between the two rivals. While Zomato was focussing on a stock-based merger, Swiggy was keen to acquire and operate the food delivery business of the Gurugram-based foodtech firm led by Deepinder Goyal.

A source privy to the matter said, “Zomato could have continued with the search and restaurant discovery business while continuing as a shareholder in Swiggy, but Zomato, which is in advanced talks to close an investment round from Chinese e-commerce giant Alibaba's payment affiliate Ant Financial, was more interested in an outright merger and proposed a 4:1 share swap ratio to Swiggy."

Swiggy recently raised $80 million Series A funding led by Naspers in May 2017. The startup raised the funds at a valuation of $400 million. However, sources claim that Zomato's proposed swap ratio is most likely to pull down its valuation to $225 million. Till date, Swiggy has raised about $155 million funding.

"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,” said a Swiggy spokesperson.

On the other hand, Zomato has raised about $223 million till date and last raised funding in 2015 at a valuation of about $960 million. It is also reportedly in talks with Chinese investor Ant Financial for a $200 million funding round.

Also, the company recently hit profitability throughout the 24 countries it operates and across all its businesses, while Swiggy grappled with a 65-fold-increase in losses FY 2015-16 at Rs 137.18 crore ($21.25 Mn) from Rs 2.12 crore ($328K) in FY 2014-15. To curb losses, Swiggy also introduced delivery charges last year and claims to be fulfilling about 4 million orders per month. Compared to this, Zomato reached a 3 million order mark in August 2017. Zomato also took over Runnr and Hyderabad-based Tinmen this year.

The foodtech space in India is currently on a rise. As per a report by RedSeer, India’s online food delivery market comprising of aggregators and cloud kitchens grew at 150% last year, in comparison to 2015, with an estimated Gross Merchandise Volume (GMV) of $300 million in 2016. Apart from Zomato and Swiggy, the other key players in this segment include UberEats, Google's Areo, FoodPanda, etc.