INDIA – Indian restaurant search and discovery service, Zomato is in ‘advanced discussions’ to offload its business in United Arab Emirates (UAE) to Berlin-based food-delivery service, Delivery Hero for about US$200-250 million.
According to ET Retail, Zomato, which is in a race to become the leader in online food and technology service is garnering up capital in battle against Bengaluru-based rival Swiggy.
Three people familiar with the development said the development aims to raise capital to bolster its delivery services in a market that is becoming increasingly competitive.
“Both Delivery Hero and Zomato have 35-40% market share in UAE. The deal will give Delivery Hero a significant market leadership,” said one of the sources mentioned.
Economic Times had earlier reported that Zomato was looking to raise between US$500 million and US$1 billion in a new financing round in a struggle to become the leading restaurant search and discovery service in India.
The firm was seeking backing from Chinese private equity major Primavera Capital and existing backer Alibaba’s payments affiliate, Ant Financial in that round of funding.
Reports reveal that Goldman Sachs, the New York based multinational investment bank and financial services company has been given the mandate to raise the funds.
As the firm ramps up funding, Ant Financial was confirmed the largest shareholder after it recently charged another US$210 million into the company.
Its existing investor, Info Edge, owns around 28% of the company and has no intentions to participate in the current round of funding, according to Sanjeev Bikhchandani, executive vice-chairman of Info Edge.
In race for dominance
Delivery Hero, which sold Foodpanda India to business to Ola in 2017 for a 1% stake in the ride-hailing company, along with Zomato control over 40% of the market in the UAE.
The deal is likely to make Delivery Hero the dominating online food order and delivery business in the UAE.
Unlike other competitors, Swiggy has been able to attract large chunks of funding from investors, amount poured in various strategies to maintain market share and attract new customers.
This has left ‘smaller’ players like UberEats and Foodpanda grapple with constrained consumer spending as well as very little numbers to woo into their stores.
Last year, Swiggy raised US$1 billion in fresh capital led by existing investor Naspers Ltd to become the fifth most valuable startup in India at a valuation of US$3.3 billion.
Both Swiggy and Zomato are spending heavily on discounting, promotions and incentives and are said to be losing US$30-40 million each month.
According to analysts, the online food delivery market is clocking over 40 million orders a month on average.