corporate law
Zomato, a leading Indian restaurant aggregator and food delivery platform, was founded in 2008 by Deepinder Goyal and Pankaj Chaddah. Since its launch, the company has expanded its operations to 23 countries, transforming from a small startup into a significant player in the industry. As of now, Zomato has successfully raised $2.5 billion in various funding rounds, underscoring its impressive growth.
Zomato has engaged in several strategic acquisitions, notably including UberEats in January 2020 and Blinkit, a rapid grocery delivery service, in August 2022. Blinkit, previously known as Grofers, was initiated in 2013 by Albinder Dhindsa and Saurabh Kumar, quickly gaining popularity for its efficient grocery delivery model. By 2021, Blinkit reached unicorn status with $120 million in funding from significant investors, including Zomato and Tiger Global. Nonetheless, operational challenges prompted Zomato to acquire Blinkit for a valuation of Rs. 4,447 crores, illustrating the complexities of mergers and acquisitions (M&A) in India.
Since the acquisition, Zomato has invested additional capital into Blinkit, contributing ₹1,500 crore in February 2025 and ₹500 crore in January 2025, resulting in a total investment of ₹4,300 crore.
The Securities and Exchange Board of India (SEBI) plays a crucial role in regulating mergers and acquisitions, ensuring transparency and equity during share transactions. Registered merchant bankers are tasked with the valuation of shares in instances where shareholders exchange existing shares for new ones. Governance concerns may arise during share swaps, particularly if new shareholders receive the same terms as existing ones, which can lead to conflicts. Therefore, safeguarding the rights of all shareholders is essential to prevent disputes.
Several motivations influenced Zomato's decision to acquire Blinkit:
Quick Commerce Entry: Zomato sought to access the burgeoning quick commerce sector, which encompasses grocery and essential delivery. This market is predominantly led by competitors such as Amazon Pantry and BigBasket, making Blinkit’s acquisition a strategic maneuver following past unsuccessful attempts at market penetration.
Enhanced Customer Engagement: By incorporating Blinkit's services into its platform, Zomato enables customers to order groceries alongside food, increasing user engagement and capturing a greater share of consumer spending.
Cost Efficiency: Zomato plans to optimize its delivery operations by sharing its fleet between its food delivery service and Blinkit, thus reducing operational costs and enhancing Gross Order Value (GOV), which measures total customer order value.
Despite noteworthy growth, Blinkit faced significant operational challenges leading to financial strains:
Dependency on Dark Stores: The operational model heavily relied on "dark stores" situated close to customers for rapid delivery. Financial limitations hindered Blinkit's ability to make timely vendor payments, resulting in the closure of approximately 50 dark stores, compromising its delivery capabilities and reputation.
Workforce Limitations: Insufficient funding affected Blinkit's capacity to sustain an adequate workforce for deliveries, leading to job reductions and diminished service levels.
Delivery Challenges: The decline in dark stores and personnel reduced Blinkit's operational efficiency, adversely impacting its promises regarding timely deliveries.
To navigate these challenges, Blinkit required a stronger partner like Zomato.
Zomato's acquisition of Blinkit was executed as an all-stock transaction, where Blinkit's shareholders received Zomato shares in exchange for their Blinkit shares. This arrangement received approval from the National Company Law Tribunal (NCLT) and gained the consent of over 75% of Blinkit’s shareholders. Under Indian tax regulations, shareholders involved in such transactions are exempt from capital gains tax, as share swaps typically do not involve cash transactions. However, Section 47(x) of the Income Tax Act, 1961, assures tax neutrality only when the swap occurs via a merger or demerger. Standalone share swaps (like Zomato-Blinkit) may trigger capital gains tax unless specific conditions are met. Furthermore, the Reserve Bank of India’s 2024 amendments allow cross-border share swaps under the automatic route, provided they adhere to pricing guidelines.
As of January 2025, Blinkit operates 1,200 dark stores, aiming to establish 2,000 micro-warehouses by 2026. The company has also introduced Bistro, a 10-minute food delivery service, and is piloting an ambulance service in Gurugram. Blinkit experienced a remarkable 129% year-over-year revenue increase in Q2 FY25, reaching ₹1,156 crore, while reducing EBITDA losses from ₹125 crore year-over-year to ₹8 crore.
Zomato's acquisition of Blinkit represents a pivotal step in its strategic expansion into the quick commerce sector. This move enhances Zomato's service portfolio and market presence while equipping Blinkit with the resources necessary to address its operational challenges. The legal frameworks governing acquisitions in India are designed to protect the interests of shareholders, creditors, and various stakeholders, with SEBI facilitating this process. The burgeoning quick commerce market in India offers promising opportunities, positioning Zomato to leverage growth in the evolving e-commerce landscape.