ZOMATO’S MERGER WITH BLINKIT

 What is the news?

In a recent news article by The Economic Times and many other such leading dailies, Zomato and BlinkIt are likely to merge in what is known as a “share-swap” deal.

For the unversed, food delivery website/app and platform, Zomato has signed a term sheet with BlinkIt, formerly Grofers, to acquire the latter. This is the second major development in the scenario after Zomato invested $100 million in the Gurgaon-based quick delivery platform, BlinkIt, last year.

According to a Business Standard report, after Zomato’s merger with BlinkIt, the latter would attain a valuation of roughly $750-800 million, which is much lower than the unicorn status it had achieved previously and its previous value of a little over $1 billion 

                    

Source: https://economictimes.indiatimes.com/tech/startups/zomato-and-blinkit-likely-to-merge-in-a-share-swap-deal/articleshow/90224450.cms

Why is the merger happening?

If reports are to be believed, BlinkIt is going through a bit of a cash-crunch situation, thus making its very own sustainability, questionable. This became even more evident when they ventured into the quick commerce space, even as competition in this market space continues to increase exponentially. Thus, apart from the merger that is on the cards, Zomato has also offered a loan of $150 million to BlinkIt, in the form of debt. It should be mentioned in this context that Zomato has decided to go ahead with this deal, even though it is in a loss-making business scenario as of now. According to analysts, this deal might exert even more pressure on the financial statements of Zomato and might prove to bring forth more harm than good in the near future!

Source: https://www.business-standard.com/podcast/companies/what-does-the-merger-with-blinkit-mean-for-zomato-and-its-shareholders-122032100040_1.html

Why is Zomato investing so much in BlinkIt despite being in the loss? What does it mean and eventually how will the scenario pan out?

Although Zomato has largely managed to shrink its losses, its top line is not increasing. Now, when Zomato and BlinkIt are in talks to merge, it might just turn the tables for Zomato and might bring in profits for its investors. However, if reports are to be believed, investors are still very much in doubt and it might do Zomato some good to come out in the open and address the fears of investors for them not to spiral downwards at a later point in time.

As far as the question of Zomato investing in BlinkIt is concerned, experts from The Economic Times are of the opinion that this decision is largely what we know as “the start-up culture.” Zomato, which is primarily a food delivery platform, has ventured in and out of the quick grocery e-commerce setup, at least 5 times in a row and this decision of theirs to invest in BlinkIt has reportedly been taken based on the simple fact that whatever is not working in the start-up culture today might just start working wonders tomorrow and will churn in even more profits for all the stakeholders of this arrangement. However, it should be kept in mind that the profitability of such models is rare, even on a globalized scale.

Conclusion:

If the experts’ opinion is to be believed, Zomato would do well to take care of its own day-to-day operations and allow BlinkIt to scale up its own performance, one day at a time. That, according to analysts, would either make or break this merger!

---- Author Astha Singh