Zomato may invest $100 million in Grofers as e-grocer shelves US IPO plan

CIOReviewIndia Team | Friday, 07 May 2021, 04:28 IST

Zomato may invest $100 million in Grofers as e-grocer shelves US IPO planFood delivery app Zomato is in talks to invest around $100 million in e-grocer Grofers, two people in the know stated, after discussions of a possible merger between the two fell through last year at the onset of the Covid-19 pandemic.

Zomato’s investment is likely part of a larger financing round and may value the Gurugram-based online grocery firm at around $1 billion, sources stated. This time the talks have centred around a capital infusion, unlike last year when Zomato would have likely acquired Grofers in an all-stock deal.

“Zomato has ambitions in the grocery segment and wants to partner with a specialty grocery company rather than build something of its own. They want to stay focussed on the food business,” a person privy to the deal details said on the condition of anonymity as the talks are private.

Grofers - which was looking to list on the tech-heavy Nasdaq in the US through a Cantor Fitzgerald blank check firm, as reported, is expected to scrap the IPO plan and continue to remain private, said another person in the know.

SoftBank Vision Fund (SVF), the largest shareholder in Grofers with an about 50% stake, was earlier steering conversations around its initial public offering via a special purpose acquisition company (SPAC).

Grofers stated, “We are in regular touch with the investor ecosystem and are seeing a lot of inbound interest given grocery is an essential need and a high growth segment. Given the dynamic business environment, there will always be room for speculation, but our team is focused on serving more families.”

Zomato’s investment in Grofers comes at a time when SVF is close to deploying $450 million in rival Swiggy, largely to help the restaurant aggregator expand its services beyond food delivery.

Swiggy has been pushing its quick grocery delivery service Instamart and daily essentials delivery platform Supr Daily in an attempt to diversify.

SoftBank with a successful DoorDash IPO in the US under its belt and GoPuff’s valuation soaring to $8.9 billion has seen the on-demand delivery category clock good returns for its portfolio firms globally.

Zomato, which experimented with grocery delivery during the initial months of the pandemic, discontinued its services under Zomato Market saying it was not core to its business. “We did grocery because the food delivery business was gone during the lockdown. For 3-6 months, it worked really well and helped us get through the crisis. Eventually, it didn’t make sense,” Deepinder Goyal, cofounder and CEO of Zomato, said in a statement.

On April 28, Zomato filed its IPO prospectus with the Securities and Exchange Board of India, seeking to raise more than $1 billion through a combination of fresh equity and sale of existing shares.

Zomato stated it intends to garner Rs 8,250 crore (about $1.1 billion) through its public listing.

The Deepinder Goyal-led company had stated in its IPO filing that acquisitions will be a key strategy for the firm. While grocery is a low-margin business, Zomato’s investment in Grofers may help it scale the vertical quickly by combining forces in a highly competitive sector which has large players like Amazon, BigBasket-Tata, Flipkart and Reliance JioMart, with deep pockets. Now, it will also take on Swiggy which has unveiled a strategy to go big on grocery.

As for Grofers, the latest investment round will help it build a much-needed war chest in a market seeing increased competition and a massive surge in demand on the back of the Covid-19 second wave.

“Now that the company has decided to shelve its IPO, it is looking to mop up around $200 million,” another person in the know said.

The online grocer had been eyeing between $400 million and $500 million through a listing on the tech-heavy Nasdaq, which was scheduled for this month at a possible valuation of more than $1 billion.

Grofers would have merged with one of Cantor Fitzgerald’s SPAC vehicles. The New York-based non-bank is led by the India-born former co-chief executive of Deutsche Bank, Anshu Jain who is its president.

Grofers recently stated it is currently at a run rate of $1 billion in annual gross merchandise value (GMV).

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