It was just last year that market was abuzzed with the IPO of Zomato with investors going gaga over the money that they had made on its listing and including me, I was too elated believing in the potential of Zomato kitchens and what they can deliver in the food delivery space in the coming years. Today, it has eroded more than 54% of its value and has been the biggest wealth destroyer for investors.
In regional slang, it is said that “Jab ek Dukaan khuli ho, toh doosri dukan nahi kholni chahiye” which in english would translate as when you have one shop up and running, don’t open another one. However, this is something which can’t be applied to the startup scenario where you need ways and methods of raising more and more money from the venture capital while you are still not profitable even in the 7-8th year of business because of massive cash burn being done to acquire customers.
Perhaps this is the only logical explanation I could think of where Zomato acquired Blinkit for an all stock deal worth almost 4500 crores.
This transaction has raised eyebrows of corporate governance watch dogs as earlier in the month of August 2021 only, Zomato paid over 750 crores to acquire a 9% stake in the company and even offered a loan of about Rs. 1,125 crores. This all stock deal means that Zomato stocks will now be valued at Rs. 71 and will issue about 62.9 crore shares giving rise to a massive dilution of about 8%. The stock has tumbled more than 14% in the last 2 days.
If we have to calculate the enterprise value of Blinkit as an entity as a whole it will come down to this:
Market Value of Stocks= 4500 crore
Market value of Debt= 1125 (given by Zomato)+ 1875( available with blinkit to be used in funding their future losses.
Adding both, we get an approximate value of 7500 crores is the value of the deal in reality for Zomato.
Now the interesting question is, if the EV or enterprise value of company is 7500 crores only, then what was the point of paying 750 crores for acquiring a 9% equity stake earlier? Also, another fact which raises eyebrows is the husband wife angle between zomato and blinkit.
Apparently cofounder of both these startups are married which wasn’t disclosed in the press release of zomato.
Zomato is clearly looking for a way to transition into quick commerce by its acquisition and have a method of getting some money out of the hands of the investors by giving them a new bait as well as found some greenery in a new space as Corona has taught them about the limitations that food delivery business has and perhaps having a lifeguard in the form of blinkit is something that can be useful for them.
This article is written by Nikhil Gupta, founder PoonjiMitra.
Linkedin of PoonjiMitra: https://www.linkedin.com/company/poonjimitra
Linkedin of Nikhil Gupta (Founder): https://www.linkedin.com/in/nikhil-gupta-319584114/
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