Zomato food ordering and restaurant discovery platform has sold off its delivery business in UAE to Delivery Hero for $172 million with an additional equity investment of $50 million, taking the total deal size to $222 million. Zomato has also closed its funding round of $315 million, led by Chinese payments major Ant Financial, gaining its financial resources to $550 million as it takes on Bengaluru-based rival Swiggy.
This round of funding, which has been going on since October 2018, took Zomato’s valuation to $2.1 billion. The round also saw participation from hedge fund Glade Brook Capital and China’s Shunwei Capital.
Zomato is looking to selling its food delivery business in Qatar and Lebanon to Delivery Hero for another $28 million, taking the total proceeds from the sale to $200 million, according to one source familiar with the development.
But while Zomato is selling its food delivery business in these countries, it will continue to run its profitable advertisement business and subscription service Gold. Zomato will also enter into a management service agreement with Delivery Hero to operate the business in these locations.
Delivery Hero will get $2 million in monthly revenues and 1.2 million orders a month from the acquisition of the UAE business and market leadership against Uber Eats in the geography. “The acquisition will allow us to further improve our service to customers in the UAE. We are also excited to become a shareholder in Zomato’s rapid food delivery growth story in India and share our learnings,“ said Delivery Hero CEO Niklas Östberg.
After this deal, Ant Financial is expected to own about 28% in the company, while Zomato’s first backer Info Edge will own 26.38%. Zomato has also set its valuation to over $3 billion for its next round of funding, which it may raise in another six months. The deal is expected to further boost the market share battle in India, which is increasingly becoming a two-horse race between Zomato and Swiggy. Both are said to be losing $30-40 million a month.
Both Zomato and Swiggy have mainly focused on the top 100 cities in the country, but they will have to now expand into new locations for additional growth, an analyst tracking the space said. “But supply side problems remain in these markets as there are not enough restaurants there. Companies could see food delivery platforms developing deeper partnerships with restaurants to find a fine balance of demand and supply. Some of them are also focusing on cloud kitchen model,” said Rohan Agarwal, head (foodtech) at RedSeer — a consulting firm focusing on internet economy.