Ride-hailing major Uber is in discussions to invest $100-200 million in fresh capital as part of the sale of its India food-delivery business to local rival Zomato, said multiple people directly aware of the transaction.
The investment will come into the combined entity of Zomato and UberEats, making the fund infusion an integral part of the share-swap deal between the two, sources close to the matter said.
If the merger goes through, Zomato and UberEats may emerge as the biggest by number of orders and size ahead of Swiggy in a hotly contested and cash-intensive online food-delivery market.
“While the agreement is not signed yet, they are in a period of exclusivity, which means both parties cannot engage with others. Uber’s capital commitment can range between $100-200 million, but this may be along with a few other investment funds,” said one of the persons.
Another said: “Zomato will go ahead with the acquisition only if Uber invests in the joint entity. They want Uber to have skin in the game else it won’t make sense for the Indian company.”
To be sure, UberEats had earlier this year come close to selling its India business to Swiggy, again in a share-swap deal, but talks fell through on tax implications and other terms that weren’t agreeable to both parties. Before firming up sale talks with Swiggy, UberEats had been negotiating with Zomato but those discussions hadn’t fructified.
The latest development of Zomato buying UberEats India comes on the back of the Gurgaon-based firm’s fundraising, which will see existing investor Ant Financial lead a $500 million round valuing the company at around $3 billion, as reported first by ET on October 4. The $500 million will be paid in a staggered manner over the next few months. “The UberEats transaction is likely to consider the same valuation which is being set by the current funding round led by Ant Financial and others investors,” said another source privy to the details of the discussions.
An Uber spokesperson said, “We don’t comment on speculation.” A Zomato spokesperson said, “We don’t comment on rumours or speculations.”
The deal will also mean Zomato takes on the UberEats cashburn, said an executive with knowledge of the deal. The two major companies in the space — Swiggy and Zomato — have also been spending millions of dollars on discounting and promotions, amounting to as much as $40-50 million per month. But Zomato was able to cut its burn by half to $20 million as of October.
UberEats, according to the executive, loses about Rs 50-80 per order depending on the day of the week and if it is running discounts or offers in that cycle. For Swiggy and Zomato, it’s Rs 10-30 per order.
“This burn is high and there will be a lot of processes that Zomato will have to set right after the deal goes through,” the executive added.
Following its IPO, Uber said in its quarterly results announcement that the Indian food delivery business has been a drag for the transportation company. According to regulatory disclosures made in India, Uber projected negative revenue of Rs 762.5 crore in its India food delivery business for the five months ending December 2019.
Uber also projected higher operating losses of Rs 2,197 crore for UberEats for the August-December period. This loss is higher than what was expected to be incurred by its core ride-hailing business, where losses stood at Rs 1,645 crore, according to a valuation report prepared by BSR, an affiliate of KPMG, released in November.
UberEats will help Zomato gain access to the southern Indian market where the company has not been able to make inroads unlike the north, which is its stronghold.
“There is conversation that Zomato will use its own platform for premium restaurant deliveries and UberEats for mass-market deliveries,” said one of the executives mentioned above. Zomato said its number of orders per day is 1.25 million in a November 29 ET report. Swiggy’s numbers are pegged at between 1.4 and 1.5 million and UberEats at 0.4-0.6 million per day, according to sources including investors and analysts.
