Online restaurant discovery and ordering platform Zomato has initiated merger talks with main competitor Swiggy, according to people familiar with the matter. However, this proposed merger talk is likely to fall through, since Swiggy is reported to be not too happy with the share swap deal.
Sources claim that Zomato has offered 1:4 share swap ratio to Swiggy. The latter has reportedly argued that the ratio does not reflect its current valuation of $500 million. Another source has claimed that the Swiggy board is divided over the merger, which has partly jeopardized the deal.
Zomato’s argument for higher ratio is fairly simple: that it is a bigger player and boosts greater valuation. According to industry sources, the Gurgaon based startup completes 3 to 3.2 million orders every month, while Swiggy completes little over 4 million orders but its transaction values are little lower.
Zomato is reportedly seeking valuation of more than $900 million in the on-going merger talks. Separately, it is also currently closing a $200-million funding round from Ant Financial, a subsidiary of Alibaba. The company’s valuation is likely to zoom beyond $1 billion post funding. However, sources claim that funding and merger talks are not connected in any ways.
Both Zomato and Swiggy have been through rough patch over the last one year or so owing to wafer thin margins and drying of funds in the ecosystem. However, severe cost cutting and laser focus approach on profitability has helped both startups to produce strong numbers during the last few quarters.
If Zomato and Swiggy does merge together, it will mark the first and also biggest ever consolidation in the online food ordering industry. The merger will also prove to be big from the context of Indian internet startup space. However, such high profile merger talks are often known for hitting the dead-end, as happened in the case of Flipkart – Snapdeal deal earlier this year.
Both companies have so far refused to comment over the merger reports.