Swiggy is in concluding stages in negotiation to buy Uber Eats, the food delivery arm of the global ride-hailing platform of discussions to sell its India business to rival Swiggy. The deal, which is expected to close by next month, will be Swiggy’s largest acquisition till date, and Uber’s first divestment of its food business globally.
The development is due to Uber’s global strategy to cut down on losses as it prepares for a public offering at a possible valuation of $120-150 billion. For the ride-hailing giant, Uber Eats alone is estimated to be valued at over $20 billion. The business generated $1.5 billion in revenue globally in the first quarter of 2018.
The transaction is likely to be a share swap, giving Uber about 10% stake in the Bengaluru-based company last valued at $3.3 billion.
In the past year or so, both Swiggy and Gurgaon-based Zomato have been raising capital as they have gone on a tear to acquire new customers. Along with these two, the market has seen heightened discounting by Uber Eats and Ola’s Foodpanda which has led to high cash burn by these companies.
Uber Eats India racked up a cash burn of around $25 million on an average 9 million orders a month, while Swiggy burns about $40-45 million a month on its food business, according to industry estimates.
The deal talks come at a time when Uber’s India rival Ola has put its food business under Foodpanda in the slow lane, and cut marketing and customer acquisition costs by two-thirds. The company is now focusing on its own private labels and cloud kitchens which include The Great Khichdi Experiment, Lovemade and FLRT brands.
Over the last couple of months, Uber Eats has grown in markets such as Hyderabad, Chennai and Pune. Experts say consolidation has been on the cards in the food-delivery business. “Consolidation will happen due to the thin operating margins and market acquisition costs, which will place enormous pressure on the companies to raise capital.