Online food aggregator and delivery platform Zomato on Friday said its board has agreed to acquire quick commerce startup Blinkit for Rs 4,447 crore (for $569 million) in an all-stock deal.
Zomato will issue up to 62.9 crore shares to Blinkit investors, amounting to equity dilution of 6.88% stake, on a fully diluted basis at the prescribed preferential allotment price of Rs 70.76 per share, Zomato said.
Zomato's shares on Friday closed at Rs 70.35 a piece on the BSE.
In addition, Zomato is also acquiring Blinkit's warehousing and ancillary services business HOTPL for $8 million. It is, however, not acquiring the B2B trading business as that no longer fits strategically into its plans, it added.
This deal knocks Blinkit off the unicorn perch. Last July, Zomato acquired around 9.3% stake in the business then known as Grofers, which pushed the startup's valuation to over $1 billion.
SoftBank, which had the largest shareholding in Blinkit with a 46% stake, will get around 3.2% as part of the transaction, as per VCCircle estimates. Tiger Global will get approximately 1.3% stake and Sequoia Capital, already an investor in Zomato, will get approximately 0.5% stake.
Other investors in Blinkit who stand to get new shares in Zomato include Korea's KTB Ventures, Yuri Milner's Apollete Asia and Bennet Coleman and Company Ltd.
Grofers International Pte, which is the promoter entity of Grofers founders, gets around 7.59 crore shares or over 0.8 pc stake in Zomato
The new Zomato shares issued are subject to lock-ins.
"While the statutory lock-in requirement is six months, we have negotiated for a 12 month lock-in for selling shareholders of Blinkit," it added.
In addition, 50% of the shares attributable to the founder of Blinkit will be locked-in for 24 months and the balance 50% will be locked-in for 12 months. The shares attributable to the exercised/ vested ESOPs of employees of Blinkit will be locked-in for the mandatory period of 6 months.
Deepinder Goyal, founder and CEO noted that quick commerce has been the company's stated strategic priority since the last one year after it first invested in Blinkit.
"We have seen this industry grow rapidly both 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, giving Zomato the right to win in the long-term," he added.
Albinder Dhindsa, founder of Blinkit, will continue to lead the quick commerce business.
The acquisition is expected to be completed by August this year.
The acquisition brings relief to Blinkit as competition in the quick commerce space has heated up. Blinkit also reportedly laid off employees, shuttered dark stores, and delayed some vendor in the payments earlier this year.
Zomato said that losses of Blinkit have come down sharply between January and May owing to operating leverage and improved execution. Blinkit also shut down a number of its unviable store which were not scaling and that also helped bring down losses, it noted.
The dark store count has come down to about 400 in May 2022, as compared to more than 450 in January 2022. "The team will continue to evaluate non-performing stores and learn what does not work," it said.
Blinkit is expected to becomes adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) break-even in less than three years.
Blinkit's revenue per order jumped due to an increase in commissions and customer delivery charges, it added. According to the Zomato's disclosure, Blinkit clocked a turnover of Rs 236.32 crore in fiscal ended March 31, 2022 as compared to Rs 200 crore in FY21 and Rs 165 crore in FY20.
The blog also said that in its shareholders' letter dated Februray 2022, Zomato had shared an upper bound of $400 million, or Rs 3000 crore investment in quick commerce in calendar years 2022 and 2022. "We still maintain that outlook, it added. Since then it has extended Rs 1125 crore as debt to Blinkit and has additional Rs 1875 crore as plan for further potential investment in quick commmerce going forward.
"Most of this capital will go towards funding losses in Blinkit during the remainder of CY22 and CY23," it said.
Notably, Blinkit had turned unicorn in August last year after getting over $120 million from Zomato and existing investor Tiger Global Management. A unicorn is a privately held startup with a valuation of more than $1 billion. Zomato's investment in Blinkit last year also meant Zomato would be bringing groceries back on to the platform, after discontinuing it in 2020.
The acquisition of Blinkit highlights the hypercompetitive and cash guzzling nature of the quick commerce space. Blinkit was one of the record 44 unicorns created in India last year. A unicorn is a privately held startup valued at more than $1 billion.
After achieving the unicorn status last year, Blinkit's co-founder and chief executive Albinder Dhindsa told Mint that it is undergoing a massive transition as it sought to bet big on making all deliveries under 10 minutes. Soon, it rebranded itself to Blinkit to focus on its pivot to quick commerce in December.
Meanwhile, new and older startups also joined the quick commerce bandwagon as 10-minute delivery service became the buzzword. For instance, Zepto, a 10-minute grocery delivery app founded by 18-year-old dropouts of computer science degree course at Stanford University last year, raised $100 million (around Rs 758 crore) in a Series C funding round led by American technology startup accelerator Y Combinator’s Continuity Fund in December. This funding round came 45 days after the company announced its $60 million fundraise in November. Earlier this year, Ola also rebranded its quick commerce business as Ola Dash.