Uber Eats – food delivery unit of US based ride hailing giant – is inching closer to selling its India business to rival Swiggy, according to Economic Times (ET). The acquisition deal will mark the first major consolidation in the food tech sector, which has been suffering from huge cash burn problem in the wake of intense competition.
Sources claim that the high profile acquisition deal is expected to close next month. The acquisition will be a share swap deal that is expected to give Uber nearly 10% stake in Swiggy, people familiar with the matter added.
Sources also claimed that Uber Eats had initially held talks with Zomato but the talks did not go through.
Uber Eats’ acquisition by Swiggy will bring much-needed rationality to India’s food tech sector. The sector has seen competition reaching to unrealistic levels as every incumbent player has been burning huge pile of cash to acquire new customers via deep discounts and cash back offers.
According to market estimates, Swiggy burns $40-45 million a month while Uber has to shell $25 million per month on discounts and cash back offers. It is obvious that companies cannot continue their irrational money spending spree at the expense of their balance sheet.
The steady rationalization in food tech sector is also reflected by Ola’s decision to put its FoodPanda business in slow lane. According to reports, Ola has cut FoodPanda’s marketing and customer acquisition costs by two-thirds.
Uber wants to be in good shape ahead of the IPO
Uber’s desperation to part ways with Indian food delivery business stems from its need to be in good shape ahead of its much anticipated IPO later this year. The ride-hailing giant is reportedly preparing for IPO at a valuation of $125 -$150 Bn. To launch an IPO at such an eye-popping valuation in current market conditions, Uber will surely need an impressive balance sheet to show to investors.
In this context, Uber has taken a more than wise decision by planning to sale its Indian food delivery unit to Swiggy. More so because this is likely to be a swap deal that will not only help Uber to trim down its losses but also earn profit through minority stake.
Last year, Uber made a similar swap deal with Southeast Asian ride-hailing company Grab to stage an exit from the region and with it cut down its losses for better IPO valuation.
Uber apparently doesn’t want to leave any stone unturned to ensure the success of its high profile IPO.