Grocery startups BigBasket and Grofers have revived talks for a merger as their investors Alibaba Group Holding Ltd and SoftBank Group Corp. look to join hands, ahead of a costly market share battle with Amazon and Walmart Inc.-owned Flipkart to dominate India’s online grocery market, three people familiar with the development said. The proposed deal involves BigBasket acquiring its smaller rival, the people said on condition of anonymity.
If the deal goes through, the merged entity could raise $250 million from China’s Alibaba Group Holding Ltd, one of the three people said. Japan’s SoftBank Group Corp. and other investors could pour more capital into that entity, the other two people said.
Grofers and Big Basket declined to comment. A spokesperson for Alibaba said, “As a policy we do not comment on market speculations.” A SoftBank spokeswoman declined to comment.
A merger of BigBasket and Grofers makes sense for their investors, said analysts. The online grocery business is a top priority for Walmart and Amazon and they are expected to pump in hundreds of millions of dollars to expand their fledgling grocery operations. Rather than raising capital separately, BigBasket and Grofers would be better off as a merged entity, said the analysts.
Bengaluru-based Big Basket (run by Supermarket Grocery Supplies Pvt. Ltd) had in early 2017 held talks with Gurgaon-based Grofers India Pvt. Ltd for a potential buyout as the latter was struggling to raise funds. Grofers, however, managed to turn around its business by the start of this year through cost cuts, reducing operations in some markets and removing unprofitable products. The exercise was rewarded, with the firm raising $65 million in March from existing investors, led by SoftBank and Tiger Global. The fresh capital was at a discount to the $400 million valuation Grofers had commanded in November 2015 while raising raised $120 million from the same investors. While the funds are considered enough to last up to 10 months, Grofers has hit the market to raise $120-150 million, a fourth person said on condition of anonymity.
To be sure, the talks with BigBasket are at a nascent stage and Grofers continues to scout for new investors. It’s not clear who will run the merged entity if the deal is finalized.
Grofers has a term-sheet from a strategic investor, which is conducting a due diligence, said the fourth person. Mint couldn’t ascertain details of the new investor or the investment being discussed.
Mint reported in May that BigBasket was in talks with investors to raise between $300 million and $500 million from Alibaba and new investors.
BigBasket is already tanking up in anticipation of the battle for market share. In February, it raised $300 million from Alibaba. Founded in December 2011, BigBasket counts Sands Capital, International Finance Corp. and Dubai-based private equity investor Abraaj Capital as its other investors. It was valued at $950 million after its last funding.
Grofers was founded by Albinder Dhindsa and Saurabh Kumar in 2013 and currently serves 13 cities including Delhi, Pune, Ahmedabad, Bengaluru, Chennai, Hyderabad, Jaipur, Kanpur and Kolkata.
Source: Mint