InvestorQ : What are the synergies for Zomato in merging with Blinkit?
Lavanya Subramanian made post

What are the synergies for Zomato in merging with Blinkit?

Anamika Sodhani answered.
12 months ago

In fact, the acquisition of a controlling stake in Blinkit by Zomato is the right move in the direction of adding Q-commerce or quick commerce to its portfolio of services. After all, the one big piece that was missing in the Zomato offering was a good Quick Commerce Franchise, unlike Swiggy which already had Instamart. The controlling stake in Blinkit will bridge that gap. Blinkit was formerly known as Grofers.

The stake sale materialized after Zomato had extended a $150 million emergency loan facility to Blinkit. This Quick Commerce player had been in a deep financial crunch in the last one year as the quick commerce space was a virtual cash guzzler. The deal between Zomato and Blinkit is entirely going to be a stock swap, with no cash exchanging hands. It values Blinkit in the vicinity of $800 million; lower than its $1 billion valuation last year.

Incidentally, Zomato already owns 10% in Blinkit and the latest swap deal will offer Zomato management operating control of Blinkit. Zomato will use the Blinkit franchise to supplement its food delivery business with rapid delivery of home needs, which his what Blinkit is all about. Quick Commerce specialist, Blinkit, had promised 10-minute delivery of groceries; and quick commerce was one of the factors driving its previous unicorn story.

It makes sense for both the players. For Zomato it is a kind of logical extension into grocery and home needs, that is supported by the Blinkit tried and tested quick delivery model. Zomato already had set aside $400 million to nurture its quick commerce franchise and Blinkit was the logical fit for Zomato. Meanwhile, Blinkit gets a life line and lives to fight another day and also gets the more stable balance sheet of Zomato.

The net outcome of the stock swap deal will be some interesting changes in ownership. For instance, Softbank which owns 40% in Blinkit, will get 4-5% in Zomato. The irony is that Softbank is already an early investors in competitor, Swiggy. Blinkit has already scaled up to record annualized gross merchandise value (GMV) of $450 million in a short span. Its 400 dark stores are still operational and will be a big boost for Zomato.