BigBasket and Grofers revive merger talks

Tinuku - 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.

The proposed deal involves BigBasket acquiring its smaller rival, the sources said. If the deal goes through, the merged entity could raise US$250 million from Alibaba Group Holding Ltd. Japan’s SoftBank Group Corp. and other investors could pour more capital into that entity.

Tinuku BigBasket and Grofers revive merger talks

Grofers, Big Basket and SoftBank declined to comment. A merger of BigBasket and Grofers makes sense for their investors. 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. 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 US$65 million in March from existing investors, led by SoftBank and Tiger Global.

The fresh capital was at a discount to the US$400 million valuation Grofers had commanded in November 2015 while raising raised US$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 US$120-150 million.

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.

In May, BigBasket was in talks with investors to raise between US$300 million and US$500 million from Alibaba and new investors. The company is already tanking up in anticipation of the battle for market share.

In February, it raised US$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 US$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.